Once upon a time…

…the used car business was straightforward.  Take in some trade-ins, buy some cars from the local auction and your mates in the trade, quick polish and stick them on your forecourt with a price sticker until the punters rolled up.  If you did that well, you could make good money, and many of todays dealer groups are based on that foundation.  A couple of news items this last week highlighted the fact that life is getting a lot more complicated, and will continue to do so.

We saw the announcement from the French bank, Societe Generale, that it was buying the French used car platform Reezocar which claims to list 7 million used cars and offers support to consumers with price negotiation, taxation and home delivery.  The business logic is that Societe Generale will use the channel to sell financial products, and in particular insurance (which is another innovation to watch as the bancassurance model threatens traditional insurance companies), and Reezocar will now have the resources to continue their expansion outside France.  It reminds me of what I have seen in Brazil where the leading used car platform, iCarros, is owned by one of the largest banks ITAU, and there are many synergies in terms of being able to pre-qualify customers based on their financial standing and previous buying behaviour, and the bank obviously has a channel for selling consumer finance.  iCarros has invested heavily in technology, including AI, and continues to do so, with the result that they offer functionality not seen in leading sites in Europe or the US.

In a separate announcement we saw the acquisition of Drover, a UK car subscription start-up, who we welcomed to speak at one of our members’ meetings two years ago, by Cazoo, the online used car platform launched just at the start of this year.  There are clearly two opportunities here as well – they have announced their intention to expand further into Europe (Drover has already started that process) and Drover can now offer subscriptions to buyers of used cars on the Cazoo platform.  As Cazoo, unlike other platforms, owns its own inventory, this provides options to generate income from inventory, as well as reducing the barriers to a pure online commitment as the Drover model allows short term commitments and an exit from a deal within weeks.

In addition to these two announcements, we have seen other trends over the last couple years in the used car market that will fundamentally affect the traditional model going forward.  Auto1, backed by Softbank, which started off providing a service offering scale advantages to smaller used car retailers in a number of European markets, has launched it’s own B2C sales channel, Autohero.  With the resources of Softbank, they have the potential to sustain the fight against the market leaders such as autoscout and mobile.de.  Leaseplan continues to develop its CarNext B2C channel, offering defleeted cars to consumers, rather than selling them onto the trade directly, or through auctions.  True fleet sales are likely to be under pressure anyway as the result of reduced business travel in a post-Covid, Zoom-ready environment, reducing the volume of cars coming into the used car market at 3-4 years old.  As OEMs struggle with generating sufficient demand for their BEV products at a level that enables them to meet their emissions targets, they increasingly look to leasing, not only in the first use, but also the second and potentially beyond, as a way of mitigating the risks associated with consumer incentives, changing technology, and uncertain residual values.  Across the model range, the growth of private leasing brings the new car back into the OEM/franchised dealer world when the lease ends in increasing numbers, with the default choice that those cars will be remarketed through the dealer network, never becoming available to the independent used car trade until they are 6 or more years old.  Where the cars are funded by the OEM captive finance company, there is the potential for these cars to be sold by the OEM directly, rather than through the dealer.  In the US, Ford announced last month that they are introducing a used car platform under a new sub-brand, with guaranteed pricing and the aim of retaining more of the used Ford car business within their network.  Meanwhile in Europe, if OEMs start to move towards agency for new car sales, they face a decision about how any trade-in cars are handled.  If they truly want consistent consumer pricing, then they need to take the trade-in directly, even if the agent (dealer) has the option to immediately buy it into his stock, and for any online sales – under an agency or franchise model – they will surely have to take this route anyway?

Taken together, these changes all suggest that we face a period of great challenges in the used car business.  OEMs will become increasingly involved in an area which they have previously neglected, and they lack operational skills.  Franchised dealers will probably benefit overall in terms of supply, but might find that on a growing proportion of transactions they either only get a commission, or the buying price will have been set by the OEM, eating into the entrepreneurial opportunity for the dealer.  Independent used car traders are likely to be squeezed by a reducing supply of stock, as business volumes drop, and the proportion of those that remain that are put on the open market reduce.  Price transparency will affect everyone, leading to more ‘fixed price, no haggle’ deals.  When the used car business has typically been highly profitable for a good operator, and the cornerstone of most franchised dealer networks, the effects will spread beyond the used car business. Not everyone will live happily ever after…