Dealers throwing away £31m profits through under-pricing sought-after used cars

Dealers are missing out on £31 million in profit due to under-pricing high demand stock, according to the latest data from Auto Trader.

Across 8,000 retailers, around 47,500 cars on the business online platform are listed below their retail market average, meaning that  dealers are leaving on average around £4,000 of profit on the table - despite the strong underlying health of the used car market and growth in demand.

Auto Trader’s data shows that consumer demand on its platform, determined by the volume of searches and advert views, has increased 6.9% year-on-year (YoY) over the course of the first two weeks of 2023.

Similarly, the number of cross platform visits to Auto Trader since January 1 has reached over 40 million, equating to a 6.2% uptick on the same period last year.

Whilst demand is robust, supply at a total market level remains constrained however with the volume of available stock increasing just 0.4% in January. These favourable market dynamics are resulting in Auto Trader’s Market Health metric, which monitors the potential opportunity in the market, increasing 6.4%.

These strong market fundamentals, including demand levels outpacing supply, would historically have maintained stable retail price growth. However, according to the Auto Trader Retail Price Index, the average used car retail price at the mid-month point is £17,108, down -6.2% YoY on a like-for-like basis, and -0.4% month-on-month.

It marks the fifth month of contraction, and although the initial softening was due to increased supply in younger aged cohorts and the drop in used EV values, the accelerated rate of contraction has been fuelled by stock underpricing, driven by recent trends in trade prices. 

Auto Trader’s data suggests continued nuances across all aspects of the used car market. As a result of the ongoing de-fleeting of around 750,000 electric vehicles sold since 2020, the average price of sub three-year-old cars has dropped -8.4% YoY to £28,485.

Used cars more than 10-years-old are still recording positive price growth, with 10–15-year-old vehicles up 4.7% YoY to £6,592 and 15+ vehicles rising 3.5% to £5,728. Cars aged 3-5 years old are down -7.8% to £19,420.

It's a similarly mixed picture in terms of supply and demand. Whilst supply is up 22.7% and demand up 27.6% for cars aged up to a year old, giving a Market Health metric of 4%, the supply of cars aged 1-3 years-old has dropped -18.9% while demand is up 12% on last year’s levels, fuelling a huge 38.2% increase in Market Health.

In such a nuanced market, and to avoid leaving potential profits on the table, it is vital to follow vehicle level retail market data to source, price and drive performance from every unit of stock.

Despite the under-pricing activity, which appears to be slowing - the 47,500 vehicles currently being advertised below their potential market value is down on the 51,633 at the beginning of the year - Auto Trader’s research indicates positive retailer sentiment for the year ahead.

In a survey conducted this month, nearly three quarters of the 1,649 retailers stated they expected to perform better than last year (58%) or the same (13%). In the same research, just one in 10 retailers indicated consumer demand would be a major challenge in 2024.

The biggest challenge indicated, at 29%, was the economic climate, and buyers’ affordability. Reassuringly, however, in a separate piece of consumer research, over 80% of in market car buyers visiting Auto Trader in December, stated they were at least as confident in being able to afford their next car as they were last year.

Commenting, Richard Walker, Auto Trader’s data & insight director, said: “Demand is robust, cars are selling quickly, and early indicators point to an uptick in transaction levels, so retailers should feel optimistic for the year ahead. Although we are seeing a slight slowdown in the volume of cars being underpriced, it remains at an alarmingly high rate. With these favourable market dynamics, trade and retail prices being out of sync can represent an opportunity – I strongly encourage retailers not to miss it.”