UK: Dealers losing market share to used car superstores - study
Back in 1992 there were no used car superstore outlets in Britain and franchised dealers had a market share of 35% of all used car sales. Since then, as the number of used car superstores has grown to reach 90 outlets in 2002, the market share of used car superstores has increased while franchised dealers' market share has fallen to 25%.
Since MFBI's last report on the future of the used car market published in 1999, the number of used car superstores has increased by 29%. The number of franchised dealer outlets has correspondingly declined by 5% over the same period. Used car superstores include privately owned single-outlet operations and small chains, plus superstores operated independently by franchised dealer groups. The number of superstores operated by dealer groups has also grown and rose to 28 outlets in 2002.
MFBI's analysis shows that finance companies and car manufacturers are becoming more involved and will operate a larger number of used car superstores themselves in future. For finance companies the opportunity from owning a used car superstore is the increase in the penetration of finance on captive used car sales. For car manufacturers, a rapid increase in new car registrations since 1999, means that the number of cars being returned to car manufacturers for remarketing as used cars is growing.
With dealer numbers falling and the inability of dealers to sell used cars in large volumes without causing a corresponding collapse in residual values, car manufacturers will increasingly resort to opening used car superstores themselves either as wholly-owned operations or as joint ventures with dealer groups, to market a growing number of used cars. Used car superstores sold 485,000 used cars in 2001 giving an average sales volume of nearly 5,400 units per outlet, compared with an average of just 290 sales per outlet for franchised dealers in 2001.
Each individual used car superstore outlet in operation in Britain is identified in MFBI's report and plotted on regional maps to show the concentration of superstore outlets throughout the country in relation to population density by postcode district. Although the major urban population areas of London, Birmingham, Leeds and Greater Manchester have a high concentration of used car superstores, MFBI's research shows that there are still open points for establishing used car superstores close to major population areas.
MFBI's report shows that sales of used cars grew by 7% between 1998 and 2001 to 6.91 million units, but used car sales by franchised dealers fell between 1998 and 2001 by 5% to 1.73 million units. Used car sales this year are expected to rise by 5% to 7.28 million units buoyed by low interest rates and low cost credit finance. Over the next five years, MFBI forecasts that used car sales will fall slightly to 7.10 million units by 2007as interest rates rise and consumer disposable incomes are reduced.
Although MFBI expects the number of used car superstores will increase, the research company forecasts that the total number of used car outlets will fall by 16% to 9,850 outlets by 2007. MFBI forecasts that the number of franchised dealer outlets will fall by 21% to 4,700 outlets by 2007, as manufacturers continue to reduce the size of their dealer networks and as dealer profitability continues to fall as a result of declining aftersales profitability, despite recent increases in new registrations. MFBI says that the number of independent used car dealers will also fall, but at a slower rate of 11% to 5,150 outlets by 2007.
MFBI's research shows that the main opportunity for franchised dealers to maintain their profitability and viability in future, is to increase their service and aftersales retention from used car sales. Recent research carried out by Castrol shows that franchised dealers retain the servicing on just 22% of the used cars they sell, compared with 56% retained servicing on all new cars sold by franchised dealers.
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