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How will online retailers fare once used car market resets, asks motor trade expert Fraser Brown

The arrival of the online car retailer has certainly had an impact on the used car market over the past couple of years, says motor trade expert Fraser Brown.

Indeed, many traditional dealerships have been inspired to adopt parts of their digital first approach as they scrambled to shift more of their services online during the darkest months of lockdown.

Their influence has allowed traditional automotive retailers to create effective e-commerce platforms enabling them to have a much stronger online presence.

Equally, the online retailers have had to adapt by establishing a physical network of ‘customer centres’ – sites that provide MOTs and car servicing and maintenance and where customers can collect the vehicles bought online.

Fraser, who is the founder and managing director of MotorVise Automotive, said: “There has already been some blurring of the lines between the two business models but there is a question over whether the new entrants to the market can continue to take a hit on profitability levels and whether they have been overvalued.

“These businesses enjoy huge financial backing and have made an undoubted impact due to their ability to hoover up most used cars coming through the auctions simply by being able to pay higher prices.

“None of the online businesses are making an operating profit. In fact, one published figures revealing it made a loss per unit in its first 12 months of trading, claiming a £460 per unit vehicle profit in Q2 2021.

“To most car dealerships in the UK, a used car gross profit of anything less than £1,000 represents a poor result in current conditions.

“It may also be the case that costs most traditional car dealerships would attribute to individual vehicles through accruals or ‘late costs’ have not always been applied.

“Demand is way ahead of supply and is likely to remain so for some time. This has undoubtedly boosted the position of the online retailer – which has not had to experience the ‘normal’ situation of seeing its stock fall in value by up to 20 per cent a year through natural depreciation.

“Eventually the used car market will re-set because the fact is a used car will always, at some point, fall in value. It will be interesting to see how the new online businesses respond once stocking charges rise and used car values start to fall month on month.

“The one thing the new market entrants have excelled at is branding and advertising – making a positive impression on the UK consumer. It also appears they are good at managing customer experience.

“Having initially believed it was possible to sell vehicles entirely online, every one of these new entrants has come to realise they need a regional bricks and mortar infrastructure to support the clicks.

“It may be that in a further two years there is less distinction between the two business models - just automotive businesses offering a combination of the online and the physical showroom experience.

“However, that may well depend on the new starters learning from their experience and gaining greater basic knowledge of the industry.”

This was posted in Bdaily's Members' News section by News Gathering .