Economic shocks aside, it is comparatively easy to predict future used car sales volumes. This is because the churn of used cars in each age segment of the car parc is relatively stable. Hence the most influential driver of used car volumes is the number of cars in each age segment. Over a five-year forecast period the older segments – from roughly three years old onwards - are known because these cars already exist.

What you don’t know, of course, is future new car sales and thus the number of cars available to be sold as used at the younger end of the market, which make up around 20% of used volume. However new car sales trends can be predicted with some degree of accuracy, and besides, if your forecast for new car sales is 10% out it only results in a two per cent error in total used car volume.

Clearly there are many other used car market drivers other than new car sales, age segment parc sizes and churn. Economic factors have proved to be extremely significant in the last few years and these factors have slowed down churn - drivers keeping their cars (new and used) longer. The best you can do is to incorporate the government’s economic forecasts in the model.

The chart below summarises our preliminary forecast for total used car market volumes to 2016. And it is strictly ‘preliminary’ because we still require several more months of data. In particular we want to see how the government’s economic projections work out, which appear to be very optimistic. The first quarter 2011 GDP growth figures will tell us a lot.

As it stands, the total used volume forecast indicates slow growth back to pre-recession levels by 2016. Apart from 9+ years, which is of little interest to retailers, the most buoyant age segment will be 3-6 years old over the period. The 0-3 year old segment will be very sluggish because of slow new car sales.

With a fair (economic) wind, the used car market will still provide retailers with good revenue and profits. However franchised dealers should probably contemplate the older age segments presently dominated by independents to make up for lack lustre sales up to three years old.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in May 2011.(See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

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The crisis actually began in the summer of 2007 with the bursting of the sub-prime mortgage bubble in the US housing market. These sub-prime mortgages had been packaged up into bonds or mortgage-backed securities, and sold to banks around the world. The value of these packages collapsed and banks had to write them off. Banks became hoarders of cash to shore up their balance sheets and this caused the liquidity crisis in the wholesale money markets – the ‘credit crunch’.

The problem spilled over into the UK economy and gross domestic product (GDP) fell in the second quarter of 2008 and went on to shrink for a total of six consecutive quarters before increasing by 0.4 per cent in the fourth quarter of 2009. For the year 2009 as a whole, GDP contracted by 4.9 per cent, compared with growth of 0.5 per cent in the previous year. While that is a huge contraction, GDP had grown by over 50% between 1999 and 2009, and thus the fall was at least from a high base.

The new government hardly got off to a flying start with much horse-trading before the formation of a coalition. The emergency budget turned out to be less than billed. Meant to address our wildly out of control public expenditure, budget deficit and the UK’s huge ‘overdraft’, it seems to us that the cuts are likely to be nowhere near as large as the headlines suggest. The Chancellor’s sums rely more on GDP growth and higher taxes than cutting expenditure.

Continuing price inflation is also a problem. Fuel, for instance, is up 25% in the last twelve months driven by high oil prices and a weak £sterling. No surprise, then, that 86% of motorists are more concerned with fuel prices today than a year ago according to recent research by Halfords-owned Nationwide Autocentres.

With all this uncertainty - and a backdrop of unemployment and as yet unsolved economic troubles worldwide – consumer confidence is well down on, say, five years ago. For example, The Nationwide Consumer Confidence Index stood at 65 in May 2010 compared to its highest point of 110 in February 2005 and lowest point of 40 in January 2009. You probably wouldn’t be shocked to learn that there is a strong correlation between consumer confidence and new car registrations, and even used cars sales and aftersales.

So for at least the next few years, the outlook for the UK is at best flat. For the retail motor industry, so reliant on consumer confidence, it will continue to be very, very tough. That’s what the ‘New Normal’ looks like.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in July 2010. (See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

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The latest intelligence on franchise networks indicates far fewer site closures than was estimated nearly twelve months ago from trends early in the recession. The number of franchise sales points is presently estimated to be just over 5,000 operating from around 4,300 sites. While this is a lot healthier than the estimates reported in January, thanks to many fewer closures in the second half of 2008, the rate of closure is still averaging over three per cent of sites per annum. This equates to 600 closures over the next five years.

In April we covered the half-time results of a survey of franchised and independent dealers looking at used cars. At that point the news was far from good with enquiries overwhelmingly down and interviewees - both franchised and independent - predicting used car sales down 15% this year compared to 2008.

The survey was completed at the end of May after interviewing 200 dealers in depth. The final result for used car enquiries compared to 2008 was still negative with 81% of franchised dealers and 75% of independents saying they had definitely noticed a fall. The final result for used car sales in 2009 compared to 2008 was less pessimistic than the half-time results indicated with both franchised and independent dealers predicting an average fall of 10%.

Another area we examined in April was gross profit margins, which at that stage of the survey were similar to 2006. The results of the completed survey confirm that franchised dealers are sustaining similar gross margins to 2006 - around 10% - but independents' margins have fallen three percentage points to just under 13% mainly because of a substantial rise in reconditioning costs to the same level as franchised dealers.

The dealer survey also looked at vehicle stock and what changes dealers will make because of the recession. Sixty per cent of franchised dealers and 57% of independents said they are re-profiling their stock and the chart details the expected changes.

How dealers are changing their stock profile due to recession

While the survey did not explicitly cover the now widely-reported shortage of used car stock, both franchised and independent dealers had between 5% and 10% less stock than in our 2006 survey. Comments collected during the survey reinforced the notion of stock shortages with franchised dealers apparently experiencing most problems probably because lower new car sales mean fewer part-exchanges to resell as used cars. We would therefore speculate that the current stock shortage is due to higher demand from franchised dealers focusing on used and buying at auction to make up for the lack of part-exchanges - rather than genuine consumer demand.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in September 2009. (See www.auto-retail.com for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

If you look carefully, there is presently a distinct peak at 62 years old, but the largest group by age is between 38 and 47. Looking forward another five years to 2014, the peaks move along five years to 67 and 43 to 52. Clearly in ten years the peaks are 72 and 48 to 57 …. and so on.

This ageing process has implications for car sales and even aftersales. Older customers have different requirements - you don't need us to tell you that - and gradually you will see customer preferences change. Older customers are, for a start, more risk averse, which might see them choose, for example, cars with longer warranties or safer cars. Despite the recession these customers will be wealthier with many perhaps enjoying an inheritance. This could affect point of sale finance volumes. It is believed that older customers tend to be more loyal, but you have to wonder how this loyalty might be challenged by prolonged exposure to the internet in ageing generations who are undoubtedly savvy in this respect.

As these various 'lumps' of population get older their requirements might change when it comes to the style of car they buy. They might only need a small car if their children have left home with some opting for a sports car, perhaps. They might not need more than one car.

Other retailers are obviously already adapting and you can see the results in clothes shops and supermarkets. Clothes are bigger and styles are changing for an older population; supermarkets too are appealing to older customers in smaller households with reduced portion sizes and meals for two.

Our main point is that the UK's ageing population changes your customers and you will have to make a conscious effort to adapt. But how? What will happen and what you must do falls into a category we call 'research we would like to do' because, to the best of our knowledge, nobody has addressed this very important area as it relates to car dealers - unless the vehicle manufacturers are keeping very quiet!

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in August 2009. (See www.auto-retail.com for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

Motor Trade Business Management Award
Sponsored by ASE incorporating Trevor Jones
Winner: Julie Oliver, Mitchell North West

Most Improved Business Award
Sponsored by NIG
Winner: L&L Automotive Mercedes-Benz Hertfordshire

Customer Care Award
Sponsored by Car Care Plan
Winner: Ken Jervis (Kia) (Stoke-on-Trent)

Aftermarket Innovation Award
Sponsored by Mobil 1
Winner: Ken Jervis (Kia) (Stoke-on-Trent)

Marketing Award
Sponsored by AutoTrader.co.uk
Winner: The Car Shop (Northampton)

Website of the Year Award
Sponsored by Motors.co.uk
Winner: Sytner Group Ltd (Leicester)
Highly commended: Clive Sutton, Holden Group

Product of her Year Award
Sponsored by Motor Trader
Winner: Castrol Professional - Red Carpet Training
Highly commended: Motor Codes

Used Car Retailer of the Year
Sponsored by Aviva Driveaway Insurance
Winner: Thame Service Station (Oxfordshire)
Highly commended: TC Harrison (Derby)

Bodyshop of the Year
Sponsored by Britannia Accident Assist
Winner: AJC Wilson Bodyshop (Essex)

Garage of the Year Award
Sponsored by Motor Codes
Winner: Academy Group (Manchester)

Car Franchise Of the Year Award
Sponsored by Mondial Assistance
Winner: Kia Motors (UK)

Service Adviser of the Year Award
Sponsored by Castrol Professional
Winner: Michael Allison, Sinclair Volkswagen
Highly commended: Jazz Mann, Chiswick Honda (London)

Sales Team of the Year Award
Sponsored by MAPFRE Abraxas
Winner: L & L Automotive Mercedes-Benz Hertfordshire

Sales Manager of the Year Award
Sponsored by Dealerweb
Winner: Gareth Lloyd Sinclair Volkswagen

Dealer Principal of the Year
Sponsored by eBay Motors Pro
Winner: Amarjit Shokar Romford Mazda (Romford)

Franchised Dealership of the Year Award
Sponsored by Experian
Winner: Now Kingston (Middlesex)

Dealer Group of the Year Award
Sponsored by HPI Finance Gateway
Winner: Sytner Group

Outstanding Achievement Award
Sponsored by Aviva
Winner: Robert Forrester (Vertu Motors)

The RAC Foundation has very different objectives to the authors of 'The Lex Report' who focused entirely on issues of importance to dealers. But then the RAC Foundation was established to protect the interest of the motorists whereas Lex was, at the time, the UK's largest dealer group. Essentially the new report is about the changing nature of car ownership and in many instances the data follow trends over decades. Unlike its distant predecessor, however, this new report is not based on a substantial and original survey but assembles various sources including government statistics. Nevertheless it is an extensive piece of work and many of the key findings and conclusions are crucial indicators for motor retailing.

Unsurprisingly the study finds that cars totally dominate travel in the UK. Quite simply with 85% of individual travel by car, no other form of travel comes even close, which has to be good news for motor retailing. But the report does point out that whilst car use has grown for nearly half a century, this trend now seems to have come to a halt with growth since the early 2000s only in proportion to increases in the adult population. The authors say that the reasons for this are unclear; however it seems to us that their reported 'saturation' of driving licence-holding of 70% of adults might be an important contributor.

Low-income households have experienced the most growth in car ownership over the last ten years. And although there has been some convergence in car use between low income households and the average population the difference is still large. The study confirms that car owners highly value the freedom and independence a car offers. In particular there is reference to the necessity of cars for work, shopping, and even after-school child escort trips for parents. Compelling evidence is provided to suggest that the vast majority of drivers have little interest in public transport and the report points out that between 80 to 90 per cent of people say they would find it difficult or impossible to adjust their lifestyles without a car.

Drivers are, though, not unaware of the costs of owning a car - economically and environmentally. People do adjust car use according to economic pressures, but most cannot envisage a future without their cars and most would go to considerable lengths and expense to maintain their ownership and use.

You cannot help feeling after reading this report that cars are a necessity and it would take events of seismic proportions to change usage patterns, which in the long run has to be good for retailers.

The Car in British Society can be downloaded as a PDF file at www.racfoundation.org.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in June 2009. (See www.auto-retail.com for subscription details.)

Less disposable income will impact on motorists whether running a privately-owned or company-owned car. The most obvious effect is a reduction in travel, which clearly affects demand for servicing and repairs, and during the recession in the early 90s vehicle-kilometres levelled off after a period of substantial growth.

Another likely outcome is that motorists will keep their cars longer. Based on total new and used car sales as a percentage of the car parc - so called 'parc turn' - the current average length of ownership is around 3.1 years and it has been at this level for most of the decade. Surprisingly the average before the recession of the early 90s was shorter. Or perhaps it is not surprising given that cars are so much better built these days. As the recession took hold in the early 90s, the frequency of change increased by 15% and it was new cars that took the hit with sales falling 13% between 1989/1990, and 21% between 1990/1991. On the other hand, used car sales remained relatively stable throughout the period of the recession.

Overall the evidence from the early 90s suggests that although motorists kept their cars longer there could have been a switch to buying used rather than new when they did change. As far as we know there was no research at the time to prove that this was the case, but it seems entirely logical that motorists in reduced circumstances will opt for cheaper alternatives.

Of course franchised dealers already focus a huge amount of effort on used car sales, and this effort needs to be re-doubled if the new car market goes pear-shaped. Or, as the Americans might say: “Bet the farm on used cars!” But which used car market segment will prosper? Households with lower incomes are most likely to be affected by any downturn - the primary market for used cars costing under £6,000. The new to used switchers, and these could even include companies, will be looking for newer and more expensive used cars including 'nearly new'.

With approximately one-third of all independent used car dealers specialising in older used car sales and nearly 60% selling used cars at a retail price of £5,000 or less, any downturn could favour well-prepared franchised dealers over independents. The 'get out of jail card' for independents will be to specialise - prestige, nearly-new cars, performance, etc. For both dealers and independents betting on the used car market, the key issue will be sourcing the right used stock, which is good news for the auctions.

Trend Tracker director Chris Oakham contributed this topical advice for dealers in the credit crunch-afflicted car sales market in his column in the subscription monthly Auto Retail Bulletin (See www.auto-retail.com for subscription details.)