Future of UK vehicle market and agency model revealed in Cox Automotive and Grant Thornton Insight Report 2021

Cox Automotive and Grant Thornton have made their predictions for the automotive retail market as part of its latest Insight Report for 2021 which will feature at AM Live.

The in-depth analysis makes predictions for the new and used vehicle markets. It also highights strategies to look to for 2022 and beyond.

The report says there is likely to be short-term pain across the vehicle lifecycle as the way things are done is transformed; but the outlook for global automotive is one of “a leaner, stronger, and more efficient technology-led business model”.

Looking at remarketing specifically, Philip Nothard, Cox Automotive insight and strategy director, said: “Back in 2018, we forecast a 20/80 auction/digital split by 2023.

“While COVID-19 has accelerated that trend, it is a journey that we have been on now for many years.

“There will still be a need for physical auctions, particularly for specialty vehicles and older cars. 

“However, there are opportunities to explore the benefits that pan-European and global operations can bring."

Visitors to this year’s AM Live on November 11 will be able to interact with the full report by playing the Insight Quest game at the show.

The game creates an interactive way to gain bite size pieces of information from the new report, with those playing the game and posting the highest scores at the show able to win prizes.

Registration for AM Live is open now and free to franchised and independent automotive retail decision makers.

New car market predictions

Electrification and semiconductor shortages are likely to continue to impact the new car market in the UK in the short to medium-term.

The market ended 2020 on 1.63m new car registrations, falling by -29.4% on the previous year.

By the end of September 2021, total registrations had hit the 1.3 million mark.

The July 2021 SMMT forecast suggests a year-end figure of 1.8m, although this may be revised later in October.

The Insight Report forecast is on the lower end, at 1.6m for 2021. This is less than anticipated at the end of 2020, and falls within the worst-case scenario from the 2020 Insight Report.

The report looks at several scenarios for the new car market, which span a market not responding as quickly as expected to the electric vehicle (EV) transition, to a steady economic recovery or a much healthier bounce back over the next three years.

Used car market predictions

The story for the used vehicle market right now is about demand strengthening.

With relatively low inventories leading to tighter conditions, the UK is continuing to witness more price inflation.

Jonathan Smoke, Cox Automotive chief economist, said: “There’s a very low probability of wholesale prices being lower than they are right now before the end of tax refund season in 2022.

“In our planning horizon, we don’t see new vehicle production starting to normalize until after 2022 and used car supply will be challenged through 2024, leaving total supply tight."

Business strategies for 2022 and beyond

Owen Edwards, Grant Thornton head of downstream automotive, said that while physical dealer footprints may decline, innovation will be required to consider how to create new revenue streams in a changed market.

The transition to an agency model will be one of the biggest changes to automotive retail in the coming years.

The Insight Report predicts that an increased throughput of vehicles sold or handed over, in businesses which are highly operationally geared will drive an upside for profits, with "the potential return on sales of well-run operations being between 2-5%".

Furthermore, Cox andd Grant Thornton predict there is also the potential for vertically integrated retail or handover, with the manufacturer or NSC owning both the distribution and the retail/handover activity.

The report says: "When operated correctly, this type of business model can generate an enhanced return on sales in excess of 6%, versus standard UK dealer margins of between 0.5% and 2%."

• Read the full Cox Automotive and Grant Thornton Insight Report 2021.