Positive used car outlook for the rest of 2024, but big change ahead due to unprecedented shift in supply dynamics

According to the latest market analysis by Auto Trader, based on the current trajectory, the used car market is expected to perform well in the latter half of the year, with sales predicted to rise 5% year-on-year (YoY) to circa 7.6m transactions. However, due to unprecedented shifts in supply dynamics, retailers will need to adapt to a rapidly changing parc and forecourt over the next few years.

Despite challenging market conditions, including the squeeze on supply, particularly among 1-5-year-old vehicles which saw levels fall circa 16%^[i] over the last six months, Auto Trader estimates used car sales increased circa 5% YoY in H1. This was fuelled by strong levels of consumer demand, which in June saw the biggest rise^[ii] on Auto Trader in 15 months, whilst July to date is up 4% YoY. This was also reflected in the average 84.4m visits to Auto Trader each month (up 9% YoY) over the period, as well as the increased pace in which used cars sold. So far this month, cars are selling five days faster than in July 2023^[iii].  

With no immediate sign of a significant drop in demand or consumer confidence, which in June reached its highest level since November 2021, boosted by the stable economic backdrop (including the softening in inflation), Auto Trader believes the market is on course to record an additional circa 350,000 used car sales this year, representing a YoY rise of around 5%.

Supply will never be the same again
However, with the number of sub-five-year-old cars on the road by the end of 2024 set to be at their lowest since 1995, current supply complexities are set to deepen. Highlighting the huge impact the shortfall of new cars built and sold over the course of the pandemic has had on stock flow, this year there will be 28%^[iv] fewer cars under five years old in the parc compared to 2019.

Looking at the data at a more granular level reveals that the scale of the loss has not been spread equally across all manufacturers, with three main factors impacting volumes. Firstly, in the two main periods of disruption in factory production, some brands were better insulated from plant closures and parts shortages, which enabled them to resume or maintain production faster than others. Next, there are some brands for which sales volumes were already in decline, a trend accelerated by the pandemic’s supply issues and volume has not recovered to previous levels.

Indeed, some brands will have around half the number of sub-five-year-old cars on the road by the end of 2024, including Vauxhall, Ford, and Mercedes-Benz, which will have 56% (560,000 cars), 54% (730,000), and 42% (310,000) fewer cars of that age cohort in the parc respectively.

Finally, a much smaller handful have seen volumes of this age cohort increase over the period due to more sales: 2024 will close with seven times more sub-five-year-old MGs and Teslas on the road compared to 2019, and 9% more Kias.

This disruption in stock dynamics will have ranging implications for retailers, not least the need to source older vehicles (requiring more preparation), as well as increased competition for stock. In 2019 5–10-year-old cars accounted for just 13% of a franchise retailers’ forecourt; today it’s nearly a quarter (22%). For supermarkets, the shift is even more profound, rising from around just 1 in 10, to nearly a third^[v].

Compounding the challenge is the huge surge in electric vehicles entering the parc. By the end of this year, Auto Trader estimates around 4% of the cars on the road will be an EV, compared to 88% ICE^[vi]. By 2033, that number will have risen to over a third, whilst the proportion of petrol and diesel will have shrunk to around half^[vii]. As a result, there will never be more sub-five-year-old petrol or diesel cars on the road than there are today, with the returning supply increasingly electric. By 2028 c.33% of all under five-year-old used cars in the parc will be electric, up from around 15% by the end of 2024.

Inevitably within this trend, some brands are also electrifying faster than others. In the coming years both retailers and car buyers will be presented with a very different set of vehicles, all of which means supply will never be the same again, and retailers will need to adapt.

Marc Palmer, Head of Strategy & Insights, explained: “2024 has had its challenges, but overall, it’s performed well, and based on the current trajectory our outlook for the rest of the year remains positive. However, the heavily nuanced market retailers have had to manage over the last few years is only set to intensify, as the combination of supply constraints, more electric cars, and a changing brand landscape mean the parc will soon look very different. With such a dramatic change in forecourt dynamics, sourcing, pricing and selling cars are going to require a blend of both instincts and insights to navigate the market ahead.”  

Notes:

^i] Based on advertised stock on Auto Trader
^[ii] Based on volume of searches and advert views.
^[iii] 28 days in July 2024 vs 33 days in July 2023
^[iv] 11.4 million sub-five-year-old cars in 2019 vs 8.2 million by the end of 2024. Source DVLA
^[v] 11% of supermarket stock in 2019 to 30% in 2024.
^[vi] Diesel accounts for 31% of cars on the road in 2024, petrol 57%.
^[vii] 2033: 34% EV / 15% diesel / 36% petrol