By Philip Nothard, CAP retail and consumer valuation editor
Following last month’s look at the pressure on margins, it’s time we turn to a less frequently discussed issue: the consumer change cycle.
Are significant numbers of consumers now holding on to cars for longer than they used to? According to our own research, the answer is yes. But perhaps the really interesting thing is that a large number of dealers also report that their customers are on a shorter change cycle.
There are no surprises in the fact that more than half of the dealers we have researched say their customers are changing less frequently. This behaviour represents a shift, for many people, into changing when they need to, rather than when they simply fancied a different car.
For that sizeable minority of dealers who say their customers are changing more frequently, the reasons behind the shift are less clear. It may be that many consumers decided to downsize in terms of engine size during the last few years when money was tighter, in an attempt to mitigate their motoring costs. If this decision – also brought on by necessity rather than free choice – was a direct response to the new economic conditions since 2008 it may not represent a trend. In other words, if the most recent change of car was a defensive action they will keep hold of it for as long as possible.
For dealers, a shorter change cycle would be good news.
A frequent observation by dealers is that they are seeing more cars that are past their MoT due date, with gappy service histories and generally more wear and tear. One dealer told us that on part-exchanges their average preparation cost had increased from £300 to £500 per unit on cars between four and six years and they had even seen a small increase from £200 to £250 on their one to three- year-old cars.
Also interesting is the dynamic around PCP. One dealer told us that prospecting past customers reveals that more are changing six to 12 months later than they used to. There is also evidence that many are choosing to settle the GFV at the end of the term, rather than change their car. This will inevitably impact on the volume of prime used stock in the marketplace.
The all-important three to four-year-old bracket is diminishing in volume. The proportion of older cars is steadily increasing. With consumers keeping their cars for longer this situation will continue.
The data and market intelligence clearly demonstrates that consumers are holding on to their cars for longer. The industry can’t continue if the fall-out of three to four-year-old cars continues to decrease at this rate.
We need to adapt to the current economy and understand what customers are buying and when. Many dealers are already diversifying and reviewing their stock profiles, streamlining the sales process from the initial internet enquiring through to the showroom.
With the recently revised forecast of more than two million new registrations for 2012, there needs to be some serious consideration to how the consumers are going to be enticed to change their cars.
It is clear that the landscape is changing for dealers. Stock profiles will have to change to take account of the evolving mix of age bands, but it will take more than that to survive and prosper in these new conditions. With the SMMT forecasting more than 2m registrations, supply is bound to increase at the nearly-new end. With more customers keeping their cars for longer, the biggest challenge will be to persuade them to change more quickly or we will see a return to a serious supply imbalance.
kevthebass - 17/12/2012 09:39
Cars are just far better than they have ever been, reducing the need to change. Corrosion, once the main driver for replacement, is a thing of the past. Mechanically vehicles are also much improved so, if you're spending your own money, something most in the trade never do, why would you change? A 10 year old Mondeo, or Golf, or one of many others, meets the requirements of the majority of users who do 10,000 miles a year and costs a fraction of even a 3 year old car. Buying new is, and always has been, financial suicide for private buyers.