The Battle for Used Car Stock
While independent superstores and virtual platforms are making terrific in-roads into the UK's used car market, franchised dealers retain significant, if under-utilised advantage. These groups get "first crack" at part-exchange arising from new car sales and proprietary access to fleet buy-backs and manufacturer demo and management cars etc.
However, as OEMs shift to an agency-based new car sales arrangement, those formerly franchised dealers ("FFD") may be compelled to "double down" on used car operations and push back against the onslaught of well-financed superstores and virtuals. So long as FFDs retain customer access throughout the initial agency engagement, they can and must exploit enhanced access to more and better quality stock.
A Simplified Stocking Model
Outside of the Covid and Microchip ravaged 2020-2021, the UK takes on about 2.5 million brand new cars every year. As a result of some reasonable de-fleet factor estimates (shown below), those new car sales translate into something like 2 million used cars of under 5-years ("late-plate") back in the market annually.
These used cars "fall" to retailers through one of two channels:
Franchised dealers enjoy proprietary access to part-exchange and program fleet through the "direct" channel,
For their outstanding supply requirement franchised dealers compete with superstores, virtual platforms and other independents in largely auction-based "market" channel.
With nearly 3,000 locations and estimated as a function of their daily stock balance, the top 130 or so franchised groups sell about 1.2 million late-plate cars every year with the various independents selling and additional 1/2 million.
Based on some reasonable distribution factors, franchised dealers secure about 750 thousand from part-exchange and manufacturers' programs leaving them to battle with independents in the "market" channel for their outstanding requirement.
So what does all this mean? To preserve and even expand their share of the used car market (very likely a "must" in the post agency environment), franchised dealers must firmly hold on to their proprietary access to part-exchange and program fleet.
The Call for Enhanced "Market" Organization
As a smaller number of more sophisticated franchised and independent dealers vie for a static or even declining supply of late-plate stock, that "battle" in the "market" channel will escalate. Neither Motorpoint nor Cazoo nor CarShop will be able to rely on auctions and other incidental buying arrangements. To operate at scale, they'll need reliable stocking plans and a very clear picture of customer demand, wholesale supply and indicated trade/retail pricing.
To reliably secure stock from the larger non-OEM suppliers, retailers must exploit their enhanced scale and sophistication to forge more "intimate" stocking relationships. Just as retailers require stock certainty, the larger daily rental, leasing companies and commercial fleets crave closer and more reliable access the the retail market. The recent closure of LeasePlan's own CarNext platform reflects their commitment to better market access through the Constellation/Cinch relationship (Note: Constellation and LeasePlan are both largely owned by TDR Capital).
In the post-agency paradigm, the more successful formerly franchised dealers will re-evaluate their distribution of capital and core resources and may come to reflect:
Used car superstores attached to
Retail after-sales networks with
De-risked balance sheets and
Asset-lite fee-for-service support to their OEM's new car sales & marketing.
In this new paradigm, their husbanding of customer and stock access will remain paramount to both franchised and independent dealers. However, our formerly franchised dealers will retail a meaningful advantage.
Grace can help bring clarity to chaos in this disrupted retail automotive paradigm enabling management and their fiduciaries to take more rational and better informed decisions.