Sector Insight: Car retail

Cars: smaller models from cheaper manufacturers have gained in popularity with cash-strapped customers
Cars: smaller models from cheaper manufacturers have gained in popularity with cash-strapped customers

The squeeze on consumer spending, higher vehicle running costs and changing buying strategies are proving tough for car retailers, writes Jane Bainbridge.

Selling cars is not the money-spinning business it once was, as multiple factors are affecting the purchasing landscape. On the one hand there is the economic situation; as consumers' disposable income is squeezed and insurance and fuel prices rise, sales of smaller vehicles are benefiting at the cost of the luxury end of the market. On the other, the internet, as in most other sectors, is affecting the way people purchase.

Customers are using the internet as a price-research tool and turning to price-comparison sites so that, when they visit a dealer or 'car supermarket', they are armed with better information on the relative cost of the vehicles.

The high cost of buying a car, new or used, means that this is a purchase many people are delaying in the current economic climate. One fifth of main households have not replaced their car for four or more years, according to TGI. New car sales have been in decline since 2007 and look set to continue to fall for the next five years.

The car market was briefly boosted by the government's scrappage incentive scheme in 2009 and 2010, which offered consumers a £1000 trade-in bonus when exchanging an old car (at least 10 years old) for a new one.

Second-hand car sales have held up best. Sales of used cars have grown 13% since 2006 to reach more than £38bn in 2011. This compares with an estimate that almost £27bn will be spent on new cars this year. However, as prices of second-hand cars rise, the benefit of opting for a pre-owned vehicle is becoming less evident, which may have an adverse effect on retailers.

Dealers have had a torrid time in recent years. While in 2000 there were more than 6000 car dealerships in the UK, by 2010 this had dropped to 4984, according to Mintel estimates. Initially, much of this was down to market consolidation, but the recession has led to unprofitable sites folding.

Renault suffered the fastest drop in franchised dealer networks since 2006, with Peugeot also being hit hard. Meanwhile, Kia's dealer network has performed well, in line with the increased popularity of cheaper car brands. Pendragon remains the leading dealership group in terms of both turnover and number of outlets. It has more than 270 premises and trades under the names Stratstone, Evans Halshaw and Chatfields.

Dealers have also had to face the challenge of 'car supermarkets' entering the UK market. These cut out the 'frills' and follow-up options in favour of wide choice and fixed, lower prices. In 2010 there were an estimated 100 car supermarkets in the UK, Carcraft and Cargiant among them. Mintel's research suggests that about 6% of potential used-car buyers are likely to buy from such a retailer.

Even after shopping around online, however, consumers still find visiting dealerships stressful: a quarter of people admit to being intimidated by them, according to GMI.

It is perhaps not surprising, then, that as well as being used as a research tool, the internet is also growing as a shopping channel for cars, albeit still a small one. Mintel estimates that in 2010 about 3% (240,000) of total car sales were via the internet or other distance channel, such as the phone.

Tesco joined the online retail sector with Tesco Cars in April this year, selling independently checked cars nationwide and offering Clubcard points on purchases.

Where and how consumers buy cars is changing, but so is what they buy. Rising running costs mean that for some, the affordability of owning a car is in doubt. AA research shows that the price of unleaded petrol rose by 58% between January 2009 and May 2011, and diesel by 43%. Other associated costs have increased, such as road tax, insurance and car finance packages.

Earlier in the year, the AA's president, Edmund King, said: 'Many drivers can't afford to fill up. AA/Populus research shows that two-thirds of drivers are cutting back on car use, other spending, or both.'

By 2015, it is predicted that there will be 1.73m new-car registrations in the UK, compared with 1.92m in 2011, and 7.13m used-car sales (6.55m in 2011). This would equate to a 5% increase in the total market over the next five years, according to Mintel.

Discussion

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus
Brand Republic Jobs

subscribe now

Latest

Waitrose boosts content strategy with 'Weekend Kitchen with Waitrose' C4 tie-up
Hottest virals: Cute puppies star in Pedigree ad, plus Idris Elba and Fruyo
Amnesty International burns candles to illuminate new hope
Toyota achieves the impossible by calming angry Roman drivers
Tom of Finland's 'homoerotic' drawings made into stamps
YouTube reveals user habits to appeal to 'older' marketers
Ex-M&S marketing chief Steven Sharp consulting at WPP
Wolff Olins reveals new CEO after Apple poaches Karl Heiselman
Glasgow offers £30,000 prize to best digital idea for 2014 Commonwealth Games
Google's revenues surge but shares drop as it grapples with transition to mobile
Facebook beats Twitter to most 'marketing friendly' social media site crown, says DMA
Fableists believe children like Finn should be outdoors enjoying life
Homebase, Baileys and Camelot join the line-up at Media360
MasterCard renews Rugby World Cup sponsorship to push cashless message
Lynx unleashes £9m 'Peace invasion' campaign
Social Brands 100 Youth: Pizza Hut most social youth brand in UK
Cheryl Cole is wild and arresting in new L'Oreal work
Morrisons told not to show alcohol ads during YouTube nursery rhymes
O2 head of brand Shadi Halliwell departs after 23 years at company in restructure
Tesco hit by further sales decline as it turns to digital Clubcard and social network
Branding guru Wally Olins dies aged 83
Duracell short film captures epic Transatlantic voyage
Ash runs Tinder experiment to show smokers are less desirable to opposite sex
British Airways teams up with Gerry Cottle Jnr for summer of rooftop film screenings
Arklu says 'girls can be superheroes too' with doll design competition
Coke enters squash market with Oasis Mighty Drops
Virgin Galactic signs up Land Rover as space flight sponsor
Motorola marketer Andrew Morley departs as Google gears up for sale to Lenovo
US Airways apologises after tweeting obscene image at a customer
Mumsnet admits users' emails and passwords accessed via Heartbleed bug