The Price Rationalising Impact of Used Car Superstores

Used car marketing has historically been predicated on a lie. The advertised price is merely a starting point forcing a separate price discovery on every sale. To operate at scale however, superstores require better visibility into both wholesale and retail pricing. Fortunately, the price setting power of their sheer scale (combined with an imperative for operating efficiency) helps rationalise pricing throughout the channel.

Example - The chart at right compares prices asked in late 2020 by both superstores, franchised and "other" dealers for a very popular Ford Fiesta. Superstores Cazoo, CarShop, Car Store, Arnold Clark and Evans Halshaw present 27 of these 19-reg cars while more traditional franchised and other dealers present 47.

A few observations jump off the page:

  • The sheer volume of cars offered by a few superstores indicates their market power,

  • Driven by their proprietary relationship with sponsoring manufacturers, franchised dealers tend to focus on cars with shorter mileage and

  • The linear trend of pricing asked by franchised dealers is consistently £500 higher than that asked by superstores.

Market Transparency – Higher pricing asked by franchised dealers may reflect those dealers’:

  • stronger confidence in the market,

  • greater tolerance for stocking expense or a

  • built-in buffer against an expected part-exchange obligation.

However, in an environment where customers increasingly consult eCommerce platforms like Autotrader, etc., retailers are relatively less able to withstand superstores' “price-setting” influence.

All other things being equal, why would a customer pay a franchised dealer an extra £1,000 for a car they could have had delivered by Cinch? In certain cases, customers will pay a limited premium for the “piece of mind” in buying from a local franchised dealer. In others, customers won’t pay the premium and they may not even pick up the phone.

Demanded Price – New car pricing drives used-car pricing. So long as manufacturers offer steeper discounts on new-cars for contract hire, the price offered on used-cars must translate into an acceptably lower monthly payment.

While cynics criticise a "stack 'em high and sell 'em cheap" strategy, superstores’ focus on customer experience and retail efficiency (i.e. reduction of “days in inventory”, etc) compels them to price used-cars straight at customers’ demanded savings.

When compared to a brand-new PCH quote (Nov, 2020), pricing asked by superstores for the 12- and 24-month old alternative (converted into monthly PCP) indicates that £50 to £75/month is sufficient to compel customer choice from brand-new to nearly-new.

Conclusion – The initial “lie” of used car pricing has historically contributed to the generally negative perception of the buying experience. However, three complementary elements of the superstore model help rationalise used car pricing:

  • Their sheer volume establishes superstores as price “setters”.

  • Their focus on enhanced customer experience and operating efficiency compels superstores to “ask” at the price sufficient to sway customer demand from the brand-new car alternative.

  • Expanding customer engagement with Autotrader and other eCommerce platforms enhances transparency in market pricing.

While it is probably true that local dealers can still secure premium in certain circumstances, superstores exert a rationalising influence over market pricing demanded by customer selection.