Better supply, higher prices and other remarketing trends for 2023
Better vehicle supply, used-car prices at an all-time high, and Asian brands thriving on European markets: those are the three main trends that will affect remarketing in 2023, Dr Christof Engelskirchen (pictured), Autovista Group’s Chief Economist, predicts.
Dr Engelskirchen, in an Autovista blog post at the end of last year, you detail three trends that will affect the remarketing space in 2023. The first is the easing of new-vehicle supply constraints. Can you elaborate on that?
“We can confirm an easing of supply constraints, which will help fill some of the orders placed a long time ago. For example, the year-on-year percent change in terms of new-car registrations in November last year was +39% in Portugal, +31% in Germany, +24% in the UK, +15% in Italy, +10% in Spain, and around 8-9% in Poland and the Czech Republic. (The overall EU new-car market was up 16.3% in November, the fourth consecutive month of year-on-year growth – Ed.)”
“Overall, new-car registrations will turn out to have been lower in 2022 compared to 2021. But we expect 2023 to end substantially higher than 2022. Across Europe, in our base case we forecast a 14% year-on-year growth in new-car registrations in 2023.”
“Supply constraints will ease this year, but not fully disappear. Rather, across the board, OEMs have learned to manage supply constraints better. For example by pre-configuring vehicles, or by taking certain options or variants out of the configurators.”
“There is a but. Consumer confidence is low, and as a result of that, we expect demand to come down. This is the consequence of monetary policy-tightening. And that, in turn, may erode an OEM’s position to maintain the price increases that they’ve implemented in 2020-’22.”
So, what does this mean for remarketing?
“We currently see Residual Values flattening out. In the UK, there has been a more pronounced downward correction, but that is related to the fact that RVs had been rising faster in the UK than in other markets.”
“Across other countries, there will be a downward correction over the next two years, as the lack of supply of attractive used cars meets very high prices. But in our base case, RVs will not fall off a cliff. Supply has been constrained for three years now, and that will support RVs.”
The second trend that will have a major impact on remarketing in 2023 is the increased pressure on used-car prices, you predict. You note how the limited used-car supply is one of the factors that have pushed up prices, and see this trend continue in 2023 – but with more price pressure on older vehicles…
“During the pandemic, older cars have consistently increased in price more than younger models. The older the vehicle, the higher the price increase, relatively speaking. One reason for this was that there was greater demand for affordable – in other words: older – used cars as a means to avoid public transport. And there has been strong demand as well from the typical import markets.”
“What we see happening right now is that many attractive used cars are gone; and that buyers who have always needed to make compromises when buying a used car now need to compromise even more, and are asked to pay similarly high prices.”
Do you have any evidence that this trend will continue, or reverse?
“The price elasticity of demand is higher for used cars, and especially so the older they get. In the article you refer to, we looked at two age clusters and could see that days in stock are beginning to rise more for older cars than for younger ones. That is an early indicator that prices may come down for the older age clusters versus the younger ones – again, relatively speaking.”
“Days-to-sell is also an important variable that remarketers should consider, and they do apply this to their pricing decision. They should pay special attention to the pricing and sales trends by age cluster, and adjust their pricing policies accordingly.”
The third major trend you focused on was the increased market entry of new OEMs, many Asian ones among them. Why are they progressing? And which ones will ultimately prove most successful?
“With the success of Hyundai, Kia, Tesla and the like, both OEMs and consumers have become more flexible when it comes to choosing their next car brand. Historically, countries with strong domestic car brands were slower to adapt, but even there, consumers have now caught on.”
“The pandemic and the supply crisis have served as a further catalyst for customer willingness to choose a different, non-domestic car brand. Especially if they managed the supply constraints better.”
“We do see that it is easier for new brands that have a strong association with established brands to gain ground. When it comes to wholly new Asian brands, it remains difficult to predict which ones will be successful and which ones won’t. However, some of these new OEMs are very much established in their home markets, and count among the most powerful OEMs in the world. I see little reason why they could not be successful in Europe.”
“What will be challenging, I think, is the fact that an increasing number of brands are fighting for the same limited amounts of attention and budget. In that kind of environment, it is more difficult and more costly to establish a new brand.”
Let’s turn to some other important trends. The three main topics discussed at the Fleet Europe Remarketing Forum in Dublin last November were electrification, digitization and distribution (i.e. the agency model). Which one of these will be the most important in 2023?
“I believe each will be highly relevant in the near term. For electrification, the trend is clear, but infrastructure is becoming a more crucial challenge now. Vehicle digitization is happening more gradually. That being said, it is one of the reasons of Tesla’s success, and we’ll see strong development in this area across brands. Functions On Demand is one of the digital features we will see being rolled out more and more, and I believe with success. Finally, the agency model: it is the sales and distribution model that enables an omnichannel, seamless and haggle-free customer journey. It will be more relevant on the new-car market, where it needs to prove itself first.”
Final question. Innovation is both life-or-death for the future of remarketing, and yet it is difficult to see which trends will make the crucial difference a few years from now. How can remarketers deal with this uncertainty?
“If you’re managing asset portfolios, diversification is a blessing. We also see this happening with vehicle portfolios, which are moving from largely diesel-only to a very diverse combination of powertrain types and brands. This is only positive.”
“Furthermore, as customer journeys become more digital – both for new and used vehicles – there is a need for more agile and powerful price-setting than ever before. The room for negotiation in a digital sales environment is zero, or close to it. So, price transparency increases. To compete in such an environment, you require highly elaborate pricing intelligence, pricing algorithms and tools.”
Thank you, and Happy New Year!