Gone are the days when buying a used car was just a plan B for people planning to purchase a car. The future of the used car market has only broadened its horizons over the past few years but showed 360-degree changes in all forms – the shift in search and purchase methods, increasing preferences for user-generated content and digital-first purchasing solutions, the growing concerns about the environment, financing options, add-on services, dealership services, and much more.
Did you know that the worldwide used car market will reach USD 2.67 trillion by 2030? (PRNewswire) And that it will expand at a CAGR of 6.1% from 2022 to 2030. Numerous opportunities, drivers, trends, and challenges will navigate the future of the car dealership landscape. This blog will cover all these nuances in great detail. Let’s dive in.
What is the Future of Used Car Dealerships?
The future of used car dealerships will be a roller-coaster adventure. Starting from technology, the rising tech advancements will pave the way for surged demand for used cars. Moreover, the ever-increasing use of AI and other digital functionalities will continue to do a makeover of the online buying experience and play pivotal roles. Besides, drivers like improved transparency between owners and buyers, and the introduction of certified used vehicle programs may bring in some positive transformations in future car dealerships.
Moreover, there has been a noticeable trend in the last few years with regard to the growing adoption of used electric and hybrid cars. The market is now experiencing the direct impact of the increased number of new Electric Vehicles (EVs) and hybrid cars that have been registered in recent years. Notably, countries in Europe such as Germany, the U.K., Spain, and Austria have observed substantial sales volumes of both petrol and electric/hybrid vehicles.
Online sales channels have been one of the major drivers of used car consumption. While online automotive retailing currently represents a small proportion of total used car sales, this segment possesses substantial growth potential. Automotive dealers have started prioritizing building omnichannel dealerships. They are now revamping their websites for sales and marketing, directing potential buyers to physical showrooms to complete the purchase process.
However, present-day consumers seek eCommerce options for their entire purchasing journey. Besides, the market demand is experiencing traction due to the escalating investment in the SUV segment. Luxury brands are actively investing in launching vehicles in the SUV segment to expand their existing sports collection inventory. This investment is expected to drive significant volume sales in the market, coupled with increased availability of a well-established supply chain network for second-hand cars.
Key Highlights for the Future of Used Car Market
- Digitally generated leads with online sales channels will gain traction, while brick-and-mortar/offline dealerships are projected to remain under severe pressure due to the COVID-19 outbreak.
- The organized dealership will withstand the demand for used cars and ultimately secure a significant share of the market.
- Data analytics tools and AI will enable non-banking financial companies to enhance the effectiveness of the underwriting process. Used car dealers, recognizing this opportunity, are forming partnerships with financial agencies, facilitating the availability of loans to customers in a more streamlined manner.
- The Asia Pacific region will see a surge in growth in the segment throughout the forecast period, primarily driven by the expanding supply base and rising demand for affordable used cars.
Global Used Car Market Industry Trends: Analysis and Forecast
The growing disposable income of working individuals is basically seen as propelling market growth. This enables consumers to purchase vehicles within a limited budget. In contrast, high-income households saw a 6.4% reduction followed by a 3.9% increase over the same period. The substantial growth in the used car market in recent years can be attributed to the cost competitiveness among new market players and the inability of a significant portion of customers to afford a new car.
Besides, According to data from Data Bridge Industry Research, the value of the global used-car industry was estimated to be USD 996,906.42 million in 2022 and will increase to USD 1,700,106.13 million by 2030. Moreover, the demand for pre-owned vehicles has seen massive growth in recent years, driven by the competitive pricing offered by new players, effective used car dealership marketing strategies, and the inability of a large portion of customers to purchase a new car.
Here’s a quick forecast of industry drivers for the used car futures market.
Rising presence of multiple car manufacturers and used vehicle dealers
To help the regional automotive sector improve and maintain its tech leadership globally, the European Commission actively promotes global technology standardization and provides funding for R&D initiatives. Used vehicle dealerships in the area are, thus, offering a variety of digital-first options for tracking automotive performance, including smartphone applications and virtual online outlets.
Growing e-commerce and Online Sales
Technological advancements in the telecom sector have enhanced internet connectivity, while the increasing pace of urbanization has played a significant role in improving people’s access to information. These developments enable used-car owners to efficiently advertise their vehicles and share relevant information. The availability of online platforms has facilitated a broader reach, allowing more individuals to sell and purchase cars.
Rising cost of new cars and affordability issues
The cost of new cars has increased. Additionally, the rise in prices observed in 2019, driven by mainstream passenger car segments, indicates affordability challenges in the new car market. As a result, the automotive industry has experienced a surge in future car auto sales compared to new car sales. This trend is expected to further fuel the demand for pre-owned vehicles.
Rising demand for versatile hatchback vehicles
Hatchbacks are witnessing a whopping increase in demand, owing to maneuverability in the compact spaces it offer. Market players offer hatchback cars characterized by a high roofline and compact design, further contributing to the development of the used car market in the region.
Used Car Market in India: Size and Share Analysis
During the projected period (2023-2028), the size of the used car market in India is expected to increase from USD 27.47 billion in 2023 to USD 55.49 billion by 2028, at a CAGR of 15.10%. This growth trajectory is set to provide a substantial boost to the auto industry trends in India.
Used Car Market in India: Size and Share Analysis
The Indian used car market will grow to USD 55.49 billion by 2028 at a 15.10% CAGR from USD 27.47 billion in 2023. Here are a few noteworthy pointers to check out:
1) Anticipated growth in the Indian used car dealership market: 8 million units with a used-to-new car ratio of 1.9 due to factors like a rising middle class, increased motorization, shorter vehicle replacement cycles, and improved access to used car financing.
2) The Indian future of the used car market in 2023 is transitioning from an unorganized sector to a more formalized one, driven by the entry of Original Equipment Manufacturers (OEMs) and New Car Dealerships. This market consolidation has increased awareness and preference for certified pre-owned cars in India.
3) Demand for used vehicles is mainly in non-metro areas, while cities like Mumbai, Delhi NCR, Bangalore, Chennai, and Hyderabad contributed to 65% of supply in 2022-2023. Small towns will drive most of the future growth, increasing the share of used car sales from 65% to 75% in the next four to five years.
4) New Car Dealers account for approximately 3 to 5% of the pre-owned car sales. However, New Car Dealerships in India have not fully utilized their real estate and assets to unlock the complete potential of the used car market. There is an opportunity for them to leverage their existing infrastructure, and manpower, and embrace innovative, technology-driven platforms to tap into this market segment.
Used Car Market Size in the USA: Size and Share Analysis
The size of the used car market in the USA in 2023 is estimated to be around $181.2 billion, according to IBISWorld. This represents a decline of -4.37% from 2022 but is still a significant market.
The used car market is larger than the new car market in the USA, with over 40 million used cars sold each year compared to around 15 million new cars. This is because used cars are generally more affordable than new cars, and they can also be more reliable, especially if they are well-maintained.
Despite the declining availability of affordable used vehicles, the secondhand market still offers a significantly larger inventory compared to new vehicles available from the factory. In the first quarter of 2023, less than one% of new vehicles sold were priced below $20,000. This indicates that there are still potential savings to be found in the used vehicle market.
Shoppers are proactively searching for the desired deal and are well-prepared regarding vehicle availability, financing options, and their own budget. With demand and prices remaining elevated, being proactive and informed before visiting the dealership is crucial.
How are Automotive Dealers Preparing for the Future?
Supply chain issues, the growing utilization of ride-hailing services, and the economic downturn are exerting pressure on auto dealerships and reshaping their business operations. If you are an automotive dealership, it’s about time you proactively consider industry-wide changes when scaling to ensure sustainable growth and meet evolving consumer demands.
Moreover, legacy vehicle dealerships are facing new competitive pressures from online dealers. Local brick-and-mortar dealerships in your vicinity are no longer the only competitors. You now also need to deal with competition from online dealers such as Carvana and Vroom. Online dealers offer the convenience of buying and home delivery. Forward-thinking auto dealers are actively preparing for industry changes.
Here are a few things auto dealers are doing to prepare for the future.
Your homegrown inventory includes vehicles that began as new sales, underwent routine service and maintenance, and were later reconditioned and sold as pre-owned vehicles.
This process is helping dealerships not only ensure a robust and high-quality pre-owned vehicle inventory but also leverage multiple opportunities to drive profitability throughout the vehicle’s lifecycle, beginning with the initial sale of a new vehicle.
New methods of marketing
As an increasing number of consumers opt for online vehicle purchases rather than visiting physical dealerships, it is imperative for you to explore new marketing tools to connect with potential customers in their preferred digital spaces. Establishing a strong online presence is crucial. And use predictive marketing tools to effectively engage a wide range of prospective customers.
This involves creating a compelling website and leveraging the power of social media marketing to effectively target potential customers with intelligent advertisements and engaging blog content. Furthermore, maintaining regular communication with customers after a purchase is essential for fostering long-term relationships and ensuring their loyalty to your dealership, encouraging repeat business and future purchases.
In 2023, there is a positive outlook for EV sales, representing a promising aspect within the future of the used car industry. Governments are implementing innovative policies aimed at encouraging EV sales while ensuring affordability and equitable access, particularly for low-income households.
Speaking of which, dealerships will play a crucial role in facilitating the mass adoption of electrification. They will help enable widespread electrification, providing a vast network of retailers and service providers with expertise in local marketing.
Here’s Why Future Car Dealerships Could Get Disappointed
Future car dealerships would need to brace themselves for tougher times, despite the growing preference for pre-owned and sustainable vehicles. Due to weaker demand and changing consumer behavior could get disappointed.
Roadblocks due to inflation rates and rising interest rates
New car prices remain close to $50,000 on average, with used cars averaging around $28,000. High annual age rates, reaching up to 11%, are causing monthly payments to rise sharply. Lee warns that further interest rate increases could lead to industry stagnation, as dealers rely on borrowed money to purchase cars, and a decline in car sales would reduce future orders. Recent improvements in inventory have prioritized higher-priced models with extensive features in new vehicle production.
The only way dealerships can maintain their consumer base is to provide incentives to shoppers struggling to find an affordable deal.
Weaker demand and changing consumer behavior
The growth of the used car dealership business is fueled by increased competition and the potential for new market entrants. Reliable services and added quality offerings have positively shaped consumers’ perceptions of the used vehicle business.
Furthermore, there is a growing demand for vehicle subscription services, which provide consumers with the opportunity to use a vehicle on a monthly basis, including maintenance, insurance, and roadside assistance. The rapid advancement of technology and frequent introduction of new vehicle models allow customers to sell or trade in their old vehicles for newer ones, offering a valuable monetary advantage. All these factors will impact the future of the used car market in the coming years.
What are the Factors that Fueled the Growth of the Used Car Industry?
The growth of the used car industry has been driven by a multitude of factors:
1) Economic Factors
Economic conditions, such as fluctuations in income and job security, have influenced consumers to opt for more affordable used vehicles over new ones.
2) Technological Advancements
Advancements in vehicle technology have extended the lifespan and reliability of used cars, making them a more attractive option for budget-conscious buyers.
3) Online Marketplaces
The rise of online platforms has simplified the process of buying and selling used cars, providing consumers with a wider selection and more convenient shopping experiences.
4) Certification Programs
Certified pre-owned (CPO) programs offered by manufacturers and dealerships have instilled confidence in used car buyers by providing warranties and assurances of quality.
5) Improved Financing Options
Enhanced financing options for used cars have made them more accessible, enabling a broader range of buyers to afford these vehicles.
6) Environmental Consciousness
Growing environmental awareness has led consumers to consider the sustainability of used cars as an eco-friendly choice compared to the environmental costs of manufacturing new vehicles.
7) Supply Chain Disruptions
Disruptions in the supply chain, such as the shortage of semiconductor chips, have constrained the availability of new cars, prompting consumers to turn to the used car market.
8) Changing Lifestyles
Evolving lifestyles and preferences have led to increased demand for specific types of vehicles, benefiting the used car market, which offers a diverse selection.
9) Longer Commutes
Lengthier commutes and urbanization have made personal transportation a necessity, driving the demand for affordable used cars.
10) Consumer Trust
Greater transparency and access to vehicle history information have fostered trust among used car buyers, reducing concerns about hidden issues.
11) Aging Vehicle Fleet
As the average age of vehicles on the road increases, more consumers are in need of replacements, bolstering the used car market.
12) Cultural Shifts
Changing attitudes toward car ownership and an emphasis on cost-efficiency have shifted consumer preferences towards used cars as practical and reliable transportation solutions.
Future of Used Car Sales and Aftersales: Key Takeaways
Expanding the “auto park” and using advanced pricing strategies for spare parts have partly driven market profitability growth. Additionally, the stability of the after-sales business has proven crucial for retail networks during periods of economic uncertainty.
Here’s a sneak peek into the future or used car sales and aftersales.
- In recent years, automakers have made substantial investments in their after-sales businesses, leading to enhanced customer satisfaction and service quality. Moreover, they have expanded their offerings into new domains like tire replacement, enabling them to capture a larger portion of the after-sales market among existing customers. The advent of connectivity technology further strengthens automakers and their service networks, providing them with a competitive advantage against independent aftermarket competitors.
- Despite these advantages, the aftersales segment will see a few challenges. Vehicle quality advancements and active warranty cost management will reduce service demand per vehicle in most markets. The rise of connected vehicles will result in the loss of service and parts revenue for dealerships and automakers as remote services become more prevalent.
- Customer retention rates are decreasing, particularly among owners of older cars who seek affordable service from independent providers. Independent dealerships and mobile service offerings are offering convenient, cost-effective, and digital/mobile-powered solutions to customers.
- Furthermore, the after-sales business has not effectively solidified customer loyalty, contradicting its intention to drive future car purchases. The expectation that service businesses would generate leads for new car sales has often proven unsuccessful.
How to Stand Out in and Navigate the Used Car Market?
Here is how you can stand out in the used car market.
1) Leverage online platforms and digital marketing auto to reach a wider audience. Showcase your inventory with virtual tours and 360-degree photos for an immersive experience.
2) Provide exceptional service, personalized assistance, and transparent vehicle information. Offer value-added services like inspections and warranties to build trust.
3) Curate a diverse selection of high-quality used cars. Highlight unique features, low mileage, and certified pre-owned options to stand out from the competition.
4) Establish a strong online presence and actively manage your reputation. Encourage positive reviews and promptly address any concerns.
5) Price your vehicles competitively based on market trends. Provide attractive financing options to overcome affordability challenges and attract more buyers.
6) Use targeted campaigns on digital and traditional channels. Leverage social media, online classifieds, and partnerships with local businesses to increase visibility.
7) Offer ongoing support and value to customers. Provide maintenance packages, service discounts, and referrals to foster long-term relationships.
Want to learn more about how you can give your dealership a competitive edge? Or how Spyne can help you secure the future of a used car dealership? Talk to our consultants today!
How Is Inflation Impacting Car Sales Trends?
Inflation is significantly impacting car sales trends in the United States, with consumers feeling the pinch of rising prices. J.P. Morgan Research anticipates that the seasonally adjusted annual rate (SAAR) of U.S. light vehicle sales will reach 14.0 to 14.5 million in 2023, a slight improvement from 13.9 million in 2022. However, this figure remains well below the pre-pandemic levels of 17.0 million vehicles sold in 2019.
The primary driver of this decline in auto sales is the record-high pricing of new vehicles, decreasing values for used vehicle trade-ins, and higher interest rates, which collectively erode affordability. This has led to what experts call “demand destruction” in the auto market.
Cox Automotive expects a further 1% decline in used car sales in 2023, due to high prices and limited inventory.A deteriorating macroeconomic outlook is further dampening consumer sentiment, discouraging potential buyers from entering the market.
The auto industry is grappling with a “lower volume, higher price” dynamic due to the lingering effects of the pandemic. While recovery may not be as rapid as initially anticipated, there is hope for an improvement in sales volume and a normalization in pricing in 2023, dependent on economic stability. (Source: J.P. Morgan Research and Cox Automotive)
The used car market is undergoing significant transformations, driven by technological advancements, shifting consumer preferences, and growing demand for electric and hybrid vehicles. Dealerships are actively adapting by offering digital-first solutions, enhancing transparency, and expanding their online presence.
However, challenges like inflation and changing consumer behavior are impacting the industry. To succeed, dealerships must leverage digital marketing, provide exceptional service, curate high-quality inventories, and offer competitive pricing and financing options.
As the global used car market evolves, adaptability and innovation are essential for dealerships aiming to thrive. Despite challenges, there are ample opportunities for those who embrace change and steer their dealerships toward a successful future.