Market Size and Trends
Between 1989 and 1999, total demand for used cars among households, businesses and other
non-commercial organisations grew by just 1% in volume to an estimated 6.35 million units
but increased in value by 50% to an estimated £30.39 billion. The number of units sold
reached a peak in 1997 at 6.73 million units before falling in 1998 by 4% to 6.46 million
units followed by a further fall in volume by 2% to an estimated 6.35 million units in
1999. The faster rate of growth in market value than market volume between 1989 and 1999,
was due to an increase in used car unit values of 48% from £3,235 to £4,785. The fall in
unit sales in 1998 and 1999 was largely accounted for by a decline in demand for older and
lower value used cars. These are just some of the findings from MFBI’s new report on
the used car market.

Historic Trends
Before looking at current trends and then further into the future, MFBI’s analysis of
historic trends show that volume demand increased in 1989 at the tail end of the 1980s
consumer boom and then remained static throughout the recession period to 1992 at around
6.20 million units, maintained in part by the then new phenomenon of nearly-new cars.
Volume demand then fell in 1993 and 1994 as an element of consumer demand returned to the
economy and an element of used car demand switched back to the new car market. Sales of
used cars began to rise again in 1995 and 1996 due to growth in the economy and rising
demand for nearly-new and genuine used cars among consumers and businesses.

In 1997, the used car market grew in volume by an estimated
9% or 568,000 units, and in value terms the market increased by £4.41 billion or 17%. The
reasons for the dramatic growth in volume and value demand for used cars in 1997 are
identified by MFBI as being the impact of building society windfall payments plus the
financial benefits of maturing Tessa accounts on an already rising level of consumer
confidence and disposable incomes. The downturn in 1998 and 1999 can therefore be seen as
a corrective re-alignment in the market as these factors, particularly building society
windfall payments, diminished.

Current Trends
Current trends suggest that volume demand declined further in 1999 compared with 1998.
Many car dealers reported difficult trading conditions during 1999 with a decline in sales
volumes combined with a continuing decline in unit residual values. Car manufacturer
disposals of nearly-new T and V-registration cars during 1999 caused prices of cars up to
three years old to weaken. MFBI’s research shows that declines in used car values
during 1999 were not only limited to nearly-new and cars up to three years old, but older
cars where used values have traditionally been stable were also affected to the point
where many franchised dealers were paying independent dealers to take unwanted
part-exchanges away.

The only occasions where used car unit values remained
strong in the used car market during 1999, was where a particular model was in short
supply or represented especially good value for money with a high specification in a
popular colour. Older used cars, particularly those over seven years old and in mediocre
condition, struggled to find buyers in the market in 1999 while a vehicle in exceptionally
good condition for its age with either below average mileage or with a full main dealer
service history would maintain a strong resale value.

Dealers reported that normal market trends had changed in
1999 with weak demand apparent throughout the whole price range of the used car market,
due in part to the change to the new twice-yearly registration system and consumer
expectations that new and therefore used car prices would fall. MFBI’s report shows
that weak volume demand was combined with an increase in disposals of nearly-new cars and
fleet vehicles up to three years old which caused residual values to decline. Car
manufacturer incentives on new and nearly-new cars resulted in an increase in supply of
older and poor quality part-exchange vehicles into the used market causing values in the
older sector of the market to experience an uncharacteristic decline in value.

The decline in the value of older cars in the used car
market meant that although used car buyers may have been attracted to what appeared to be
good value newer used cars, the value of their part-exchange vehicles had also declined in
value to a greater extent than they had anticipated. A high cost-to-change burden despite
the availability of good value used cars, therefore discouraged some consumers from
changing their current vehicle causing volume demand to remain weak.

Trends in Used Car Price Bands
An analysis of trends in used car price bands between 1988 and 1997 by MFBI, shows that
cars costing less than £6,000 accounted for the largest volume of total used car demand
in 1997 at an estimated 74%, but that this price sector’s share of the market has declined
since 1988 as a proportion of the total market by 16 percentage points. In unit volume
terms this relates to a decline of only 4% because, although the sub-£6,000 sector of the
market has declined as a proportion of the total market, the total market has grown by 16%
or by 946,000 units since 1988.

Used cars costing £6,000 or more have increased their
share of sales from 10.1% in 1988 to over a quarter of total volume demand in 1997 at an
estimated 26.1%. This reflects the growth in sales of higher value low mileage nearly-new
cars over the period as an alternative to new cars, and also as a result of an increase in
consumer confidence and affluence over the period which has encouraged a larger proportion
of consumers to trade up to more expensive used cars.

Market Size Forecasts
Based on the market factors analysed in MFBI’s report, MFBI expects the used car
market to grow in volume terms by 12% between 1999 and 2005, from 6.35 million units to
7.10 million, and to grow in value by 36% from £30.39 billion to £41.18 billion. Within
this forecast, the market is expected to grow steadily over the period to 2002 by an
average annual rate of 4% reaching a peak of 7.15 million units in 2002, before declining
slightly and then remaining static in volume terms to 2005. Market value is expected to
continue rising due to a 21% increase in used car unit values over the forecast period.

Although the average value of used cars purchased is
expected to increase over the forecast period, the potential rate of growth in used car
unit values will be subdued by a weakening of residual values, particularly for cars up to
three years old during the last three years of the forecast period. Oversupply of new and
nearly-new cars by manufacturers plagued by low volume sales of new cars and excess
production capacity, will cause residual values in the used car market to remain weak over
the forecast period. The expected growth in used car unit values will occur as a result of
shifts in demand between price bands, with a declining proportion of sales of cars under
£4,000 and a rising proportion of sales of cars between £4,000 and £10,000.

Retail Distribution Structure
In 1998 there were an estimated 12,645 outlets selling used cars in the retail market,
comprising 6,200 franchised dealer outlets and 6,445 independent used car outlets. Over
the period between 1990 and 1998, the total number of used car outlets grew by 10%
compared with a static used car market in unit sales terms over the period. Between 1990
and 1998, the number of independent used car outlets almost doubled from 3,395 outlets to
6,445 while the number of franchised outlets declined by nearly a quarter. In 1998, the
number of independent used car outlets is estimated to have exceeded the number of
franchised outlets for the first time since 1990. The overall growth in number of used car
outlets since 1990 has therefore been sustained by an increase in the number of
independent used car outlets.

Franchised Dealer Outlets
The decline in the number of franchised dealer outlets is a reflection of high investment
costs and narrow profit margins for franchised dealers, resulting in an overall decline in
franchised dealer viability. More recently, it also indicates a restructuring of
franchised dealer networks to fewer larger dealer territories with a growing proportion
coming under the control of large dealer groups. The main reason for narrow franchised
dealer profitability stems largely from low profitability from new car sales which make up
on average 50% of a franchised dealer’s sales turnover but contributes only 10% to
dealer profitability.

Consequently, the number of franchised outlets is in steady
decline and so therefore are the number of franchised dealer used car outlets. The trend
towards larger dealer territories under what has become termed the ‘Market Area
Approach’ may result in an overall reduction in the number of large main dealerships,
but also result in an increase in the number of smaller satellite outlets within a main
dealership territory. Rather than selling new cars, satellite dealerships may concentrate
more on aftersales activities, particularly servicing, MoT testing and used car sales.

Independent Dealer Outlets
The growth in the number of independent used car outlets by 90% between 1990 and 1998
occurred despite static volume demand for used cars over the period. The increase in the
number of independent used car outlets may include independent outlets opened by
franchised dealers as independent operations under their own brand as car manufacturer
influence over franchised dealer used car operations increased. The growth in the number
of independent used car outlets while franchised outlets declined can also be attributed
to the market segment targeted by independent dealers. In MFBI’s last report on the
used car market, it was shown that independent dealers primarily sell cars in the
sub-£6,000 sector of the market which accounts for 74% of all used car transactions.
Although this price sector’s share of used car sales is falling, a decline in the
number of private-to-private sales in this price sector could contribute to a larger
volume of sales for independent dealers.

Market Penetration
Private-to-private used car sales accounted for the largest proportion of used car
transactions in 1998 at an estimated 34% of all used car sales, although their share of
the market has declined from 50% in 1989. Independent dealers accounted for a larger share
of the used car market in volume terms than franchised dealers 1998 with a share of 32%
compared with 29% for franchised dealers. This is due to the wider age and price range of
vehicles sold by independent dealers. Independent dealers’ penetration of the used
car market grew from 24% in 1989 to an estimated 32% in 1998 representing a 54% increase
in volume sales of 729,000 units. Franchised dealers’ share of the used car market
also increased between 1989 and 1998 from 21% to 29%, representing a 59% increase in
volume sales of 699,000 units.

In 1998 there was a continuation of the trend toward a
decline in the volume and proportion of private sales and an increase in the proportion of
sales through car dealers. In 1998 there was a significant increase in sales of cars less
than one year old compared with 1997, with a corresponding decline in the number of cars
sold over ten years old. This tended to benefit franchised and independent used car
dealers as the decline in residual values during 1998 made newer used cars better value
than older used cars. The clearance of rapidly depreciating over-age stock by franchised
dealers in particular, enabled independent dealers to buy younger used cars in the
wholesale market at competitive prices.

Distribution Forecasts
The number of dealers selling used cars in Great Britain is forecast by MFBI to decline by
4% over the period between 1999 and 2005, from 12,625 outlets to 12,125 outlets. The main
reason for the overall decline in the number of dealers selling used cars in Britain is
the expected continued decline in the number of car manufacturer franchised dealer
outlets. The number of franchised dealer outlets is forecast to decline by 17% between
1999 and 2005, from 6,075 outlets to 5,055 outlets. The number of independent used car
outlets is forecast to rise by 8% from 6,550 to 7,070 outlets, although the increase will
be insufficient to offset the decline in the number of franchised dealers.

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  • Introduction………
  • Research Methodology……….
  • Consumer Research..
  • Definitions………..
  • Abbreviations…….

Report Summary…..

  • Market Size and Trends..
  • Used Car Price Bands……..
  • Used Car Price Trends……
  • Nearly-new Cars
  • Influencing Factors………….
  • Fleet Car Disposal…
  • New Car Replacement Cycles……
  • Residual Values……
  • The Supply Structure………….
  • Grey Imports……
  • Manufacturer Branded Used Car Programmes……
  • The Distribution Structure………..
  • Wholesale Distribution……
  • Retail Distribution……
  • Internet Sales……
  • Demand For Used Cars…
  • Used Car Finance………..
  • The Future.
  • Market Size……
  • Distribution Structure

Market Background…………………..

  • The UK Economy………..
  • Growth in Consumer Expenditure……
  • Future Economic Prospects……
  • Demographic Trends and Car Ownership………
  • UK Population Structure
  • Households and Car Ownership……
  • Licence Holding….
  • Demand for New Cars in the UK
  • New Car Registrations….
  • Size of the Car Parc….
  • The Company Car Parc……
  • Structure of the Car Parc….
  • Scrappage Rates and Car Parc Age
  • Car Parc by Manufacturer….
  • Three Year Car Parc……
  • The Used Car Market
  • Market Size and Trends
  • Current Trends….
  • Historic Trends….
  • Nearly-new Used Cars…
  • Trends in Used Car Price Bands.
  • Market Price Trends….
  • Future Used Car Price Trends….
  • Implications of VAT……
  • High Mileage Used Cars…

Factors Influencing the Market

  • Excess Car Production and Distribution………
  • Direct Fleet Sales..
  • Manufacturer Leasing….
  • Fleet Disposal Methods..
  • New Car Replacement Cycles
  • New Car List Prices.
  • High List Prices……
  • Trade Guides and Residual Values
  • Car Manufacturer Residual Price Management……
  • Falls in Residual Values….
  • Stricter Car Operation Legislation………
  • Integrated Transport White Paper……
  • Emissions Legislation……

The Supply of Used Cars……………….

  • Ex-fleet Vehicles………..
  • Company Cars……
  • Leasing and Contract Hire
  • Daily Rental……
  • Manufacturer Fleets……
  • Self-registration and Demonstrator Vehicles..
  • Part-exchange and Personal Contract Vehicles..
  • Grey Imports
  • Single Vehicle Type Approval.
  • Parallel Imports
  • Impact of Grey and Parallel Imports….
  • Used Car Sales by Manufacturer Brand..
  • Manufacturer Branded Used Car Programmes….

The Distribution of Used Cars……………….

  • Wholesale Vehicle Auctions………..
  • Open Auctions..
  • Closed Auctions..
  • Auction Re-marketing Programmes….
  • Retail Distribution Structure………..
  • Franchised Dealer Outlets….
  • Independent Dealer Outlets….
  • Market Penetration………
  • Franchised Dealer Profitability and Used Car Sales..
  • Franchised Dealer Used Car Profitability……
  • Sources of Used Car Stocks….
  • Stock Disposal Channels.
  • Independent Dealer Used Car Sales..
  • Independent Dealer Used Car Profitability……
  • Sources of Used Car Stocks….
  • Stock Disposal Channels
  • Franchised and Independent Dealer Profit Comparisons…
  • Used Car Superstores…..
  • Current Used Car Superstore Operations….
  • Independent Used Car Superstores….
  • Dealer Group Used Car Superstores….
  • The Rise and Fall of the Car Group….
  • The Future Viability of Used Car Superstores….
  • Future Development of Used Car Superstores….
  • Internet Selling………
  • Wholesale Trading Sites….
  • Retail Marketing Sites….
  • Future Development of Internet Used Car Marketing
  • Regulation of Dealers………
  • Licensing of Dealers..

Demand For Used Cars……………..

  • Used Car Ownership…….
  • Vehicle Age…
  • Length of Ownership…….
  • Source of Purchase………
  • Purchase Price.
  • Purchase Price and Age of Car….
  • Purchase Price and Length of Ownership….
  • Purchase Price by Owner Demographics
  • Research Conclusions…..
  • Used Car Ownership….
  • Purchase Price….
  • Source of Purchase….

Used Car Finance…

  • Car Dealer Finance………
  • Hire Purchase….
  • Personal Contract Purchase….
  • Direct Consumer Finance………
  • Personal Loans….
  • Mortgage Products….

Strategic Outlook and Recommendations……..

  • The Used Car Market – Opportunities and Threats………
  • Market Opportunities..
  • Market Threats..
  • Distribution SWOT Analyses………
  • Franchised Dealer Used Car Sales….
  • Franchised Dealer Used Car Superstores….
  • Independent Used Car Dealers..
  • Independent Used Car Superstores….
  • Main Strategic Recommendations………

Future and Conclusions……………..

  • Used Car Demand Factors………
  • The UK Economy….
  • Population and Demographic Trends..
  • New Registrations and the Car Parc….
  • Used Car Supply Factors………
  • Excess Production and Pre-Registrations..
  • Manufacturer Re-marketing Programmes..
  • Used Car Market Size..
  • Market Factors..
  • Market Size Forecasts….
  • Distribution…….
  • Larger Dealers..
  • Franchised Dealer Outlets..
  • Independent Dealer Outlets..
  • Used Car Superstores….
  • Used Car Finance………

Appendices……………..

  • Internet Used Car Retail Transaction Sites………
  • www.fish4cars.co.uk
  • www.carsonweb.com….
  • www.autohit.com….
  • www.motortrak.com
  • Used Car Finance Products………
  • Market Facts and Business Information – www.mfbi.org…

Index…….

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Abstract: The Future Of The Used Car Market

 
Introduction

 
This report is a comprehensive analysis of current and future trends in the market for used cars in Great Britain including nearly-new vehicles re-marketed by vehicle manufacturers with low or only delivery mileage. The report is aimed at providing a detailed analysis of the market for franchised and independent used car dealers, vehicle manufacturers, auction companies, warranty companies, finance companies and organisations supplying the market with related products and services.

 
The report analyses all aspects of the used car market including trends in market size in volume and value, the supply structure for used cars and the wholesale and retail distribution structure. An analysis of consumer demand factors is provided through original quantitative research commissioned by mfbi exclusively for this report. In addition to analysing the main elements of the market, the report also provides a comprehensive analysis of the factors that influence demand in the market. These include developments in the UK economy, population trends, demographic and car ownership trends and the market for new and used cars. Government and non-government statistics are used as the basis of trend analysis which is supported by DVLA data on used car transactions provided by Experian, a contracted agent for the analysis and marketing of DVLA data.

 
Readers who wish to study the main findings of the report prior to reading the report in detail should read the summary at the beginning followed by the future and conclusions section, together with the strategic outlook section at the back of the report.

 
Research Methodology

 
The research methodologies employed in the compilation of this report include desk research, face to face and telephone depth interviews with senior managers in the used car market, including independent and franchised dealers, fleet companies and auction companies. Quotations from depth interviews are employed throughout the report to provide emphasis to and summarise particular points in the main findings. Where possible, quotations from trade research interviews are used verbatim but in order to maintain the confidentiality of information provided by respondents, key words that would otherwise identify the individual or their organisation have been left out or substituted with general descriptions in brackets.

 
Consumer Research

 
The quantitative consumer survey was based on a sample of 1,250 used car buyers defined as car owners or someone with the main use of another person’s car where the purchase price of the car was known. The sample comprised two months research data based on fieldwork carried out in November and December 1998.