Understanding the Used Car Market’s Future
The days when purchasing a used car was only a backup option for those who were planning to buy one are long gone. Over the past few years, the used car market has not only expanded its horizons but also demonstrated 360-degree changes in all areas, including the change in search and purchase methods, rising user-generated content and digital-first purchasing solutions, rising environmental concerns, financing options, add-on services, dealership services, and a variety of other factors.
Did you know that by 2030, the global market for old cars will be worth USD 2.67 trillion? (PRNewswire) And that between 2022 and 2030, it will grow at a CAGR of 6.1%. The landscape of car dealerships will be shaped by a variety of opportunities, drivers, trends, and difficulties. These nuances will all be thoroughly covered in this blog. Let’s start now.
What Role Will Used Car Dealerships Have in the Future?
Used car dealerships will have a wild ride in the future. Technology will be the first area where demand for secondhand cars will increase due to increased digital breakthroughs. Furthermore, the transformation of the online shopping experience and the rising usage of AI and other digital features will continue. Additionally, drivers’ preferences for increased transparency between sellers and buyers and the implementation of programs for certified pre-owned vehicles may result in favorable changes for future auto dealerships.
In addition, there has been a clear trend in recent years toward the increasing use of secondhand electric and hybrid vehicles. The market is currently being directly impacted by the rise in the registration of new electric and hybrid vehicles (EVs) in recent years. Notably, both gasoline-powered and electric/hybrid car sales have been reported in significant numbers in nations in Europe like Germany, the U.K., Spain, and Austria.
One of the main forces behind the consumption of used cars has been online sales platforms. Despite making up a very modest fraction of all used car sales at the moment, online automobile shopping has considerable development potential. Building omnichannel businesses has become a top priority for auto dealers. They are currently updating their websites for marketing and sales, sending potential customers there to complete the purchase process.
However, modern shoppers look for eCommerce options throughout the entire buying process. Additionally, the market’s demand is gaining momentum as a result of the rising investment in the SUV market. To increase the availability of their current sports collection, luxury manufacturers are actively investing in the development of SUVs. This investment is anticipated to result in considerable volume sales in the market and greater accessibility to a dependable second-hand car supply chain network. Additionally, there has been a notable change in how individuals commute, with more choosing independent mobility with their own cars, which is expected to lead to a significant uptick in the market.
Important Points for the Used Car Market’s Future
The COVID outbreak is expected to continue to put a lot of pressure on brick-and-mortar and offline dealerships, while digitally generated leads with internet sales channels will gain popularity.
The organized dealership will endure the demand for pre-owned vehicles and eventually win a sizable market share.
Non-banking financial organizations will be able to improve the efficiency of the underwriting process thanks to data analytics technologies and AI. Recognizing this possibility, used vehicle dealers are partnering with financial institutions to expedite the loan application process for clients.
Throughout the projected period, the market will experience a spike in growth in the Asia Pacific region, primarily due to the expanding supply base and rising demand for reasonably priced used automobiles.
Industry Trends in the Global Used Car Market: Analysis and Forecast
In general, it is believed that working people’s rising disposable income is accelerating market expansion. This makes it possible for consumers to buy cars on a tight budget. According to Statistics Canada studies, in the first two months of 2021, the disposable income of low-income households increased by 3% and 3.3%, respectively.
The market for used cars
High-income households, on the other hand, experienced a 6.4% decline followed by a 3.9% rise during the same time period. The cost-competitiveness of new market entrants and the inability of a sizeable number of customers to buy a new car are two factors that have contributed to the used car market’s enormous expansion in recent years. Additionally, during the projected period, the worldwide used automobile market will grow from USD 996,906.42 million in 2022 to USD 1,700,106.13 million in 2030.
Additionally, the used automobile market has experienced tremendous growth in recent years due to aggressive pricing provided by new competitors in the market and the inability of a sizable portion of customers to buy a new vehicle.
Here is a brief analysis of the used automobile market’s key industry trends.
Opportunities
Increasing numbers of used car dealers and auto manufacturers
Due in large part to the simple availability of financing for used car purchases, the European used car market has seen a consistent increase in revenue, topping USD 500 billion in 2021. The European Commission actively promotes international technology standardization and offers financing for R&D efforts to assist the regional automobile industry in strengthening and maintaining its technological leadership in the world. As a result, local used car shops are providing a range of digital-first solutions for monitoring automotive performance, such as mobile applications and virtual web stores.
Increasing online sales and eCommerce
The speed of urbanization has significantly improved people’s access to information, while technological developments in the telecom sector have improved internet connectivity. These advancements make it possible for owners of used cars to effectively market their automobiles and disseminate pertinent information. A wider reach has been made possible by the advent of online platforms, enabling more people to sell and buy cars.
Drivers
rising new-car prices and concerns with affordability
New cars now cost more money. Affordability issues in the new automobile market are also indicated by the price increase seen in 2019 that was driven by mainstream passenger car categories. As a result, used car sales have increased relative to new car sales in the automotive industry. The market for used cars is anticipated to increase as a result of this trend.
increasing demand for practical hatchback cars
Due to their ability to move in small areas, hatchbacks are in extremely high demand. Players in the market provide hatchback vehicles with a high roofline and a small body, which helps the region’s used car market grow.
Size and Share Analysis of the Indian Used Car Market
By 2025, India, which is currently the fourth-biggest vehicle market in the world, will overtake China as the largest market. The used automobile market in India will grow and increase at a remarkable rate, with a CAGR of 19.5% (Times of India) from 2026–2027, piggybacking on successful company models and tactics. The trends in the Indian car industry are expected to be significantly boosted by this growth trajectory, commencing with the $23 billion valuation in 2022.
India’s Used Car Market
Here are a few important details to consider:
With a used-to-new automobile ratio of 1.9, future used car dealership marketing is projected to sell 8 million vehicles. The growing middle class, rising motorization rates, shorter vehicle replacement cycles, and easier access to used automobile financing are just a few of the reasons for this growth.
Due to the entry of Original Equipment Manufacturers (OEMs) and New automobile Dealerships, the Indian used automobile market is changing from an unorganized to a more formalized sector. In India, knowledge of and preference for certified pre-owned vehicles have increased as a result of the market consolidation.
While urban centers like Mumbai, Delhi NCR, Bangalore, Chennai, and Hyderabad accounted for at least 65% of the supply in 2021–2022, the demand for used cars is mainly focused in non-metro areas. Small towns will, however, be the areas of greatest growth as the percentage of used automobile sales in non-metropolitan areas is predicted to rise from 65% to 75% over the next four to five years.
About 3 to 5% of the sales of used cars come from new car dealers. To fully realize the potential of the used automobile industry, Indian new car dealerships have not yet employed all of their assets and real estate. They have a chance to capitalize on this market niche by utilizing their current human capital, infrastructure, and technologically advanced platforms.
Size and share analysis of the US used car market
Despite a 6% drop in average used car costs from 2022 to 2022, it’s crucial to remember that prices are still 44% higher than they were before the epidemic. Unfortunately, compared to the time prior to the pandemic, the significant price increase has persisted.
Despite the decreasing supply of reasonably priced used cars, the used car market still has a much bigger selection than new cars that are directly from the manufacturer. Less than 1% of newly sold vehicles in the first quarter of 2023 had a starting price under $20,000. This shows that the market for secondhand cars still offers the possibility of financial savings.
Consumers are proactive in their quest for the ideal offer and well-informed regarding the availability of vehicles, financing choices, and their own financial situation. Being prepared and proactive before visiting the dealership is essential due to the continued high levels of demand and prices.
How are car dealers getting ready for the future?
The economic slump, supply chain problems, and rising use of ride-hailing services are putting pressure on auto dealerships and changing how they conduct business. It’s essential for automobile dealerships to proactively take industry-wide developments into account while scaling up in order to secure long-term success and satisfy changing customer demands.
Vehicle Dealers
Additionally, online dealers are putting fresh competitive pressure on conventional auto dealerships. There are now more rivals than just the nearby brick-and-mortar stores. You now have to contend with rivalry from internet retailers like Carvana and Vroom. The ease of ordering cars online and having them delivered right to their houses is offered by these internet dealers to their customers. Auto dealers who are thinking ahead are proactively taking action to make sure they are completely ready for the changing industry scenario.
Here are some future-proofing measures taken by auto dealers:
Localized Inventory
Your in-house inventory consists of automobiles that were first sold as new cars, went through routine maintenance and servicing, and then were traded in, fixed up, and sold as used cars.
In addition to ensuring a large and high-quality pre-owned vehicle inventory, this method enables dealerships to take advantage of several chances to increase income from the moment a new vehicle is first sold until the very end of the vehicle’s lifecycle.
new strategies for marketing
You must investigate new marketing strategies to interact with potential customers in their chosen digital places as more consumers choose to buy vehicles online rather than going to physical dealerships. It’s essential to build a solid internet presence. And effectively engage a variety of potential clients by using predictive marketing solutions.
This entails building an appealing website and utilizing social media marketing’s power to efficiently target potential customers with clever ads and interesting blog posts. Furthermore, it is crucial to stay in touch with clients after they make a purchase to build long-lasting connections, ensure their loyalty to your dealership, and promote repeat business and additional purchases.
Electrification in the future
Sales of EVs are expected to increase in 2023, marking a favorable development for the sector. In particular for low-income households, governments are introducing creative measures to promote EV sales while assuring affordability and equal access.
Speaking of which, the mass adoption of electrification will be made possible by dealerships. With their extensive network of merchants and service providers and their proficiency in neighborhood marketing, they will contribute to the pervasive electrification of society.
Here’s Why Future Auto Dealerships Might Be Let Down
Despite the rising popularity of used and eco-friendly vehicles, future auto shops will need to prepare for harder times.
obstacles brought on by rising interest rates and inflation rates
New car prices remain close to $50,000 on average, with used cars averaging around $28,000. Monthly payments are increasing dramatically as a result of high yearly aging rates that can exceed 11%. 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. The perception of consumers towards the used vehicle business has been positively influenced by reliable services and additional quality offerings.
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.
Factors that Fueled the Growth of the Used Car Industry
Let’s look at some factors that have impacted the growth of the used car market.
Used Car Industry
Between 2022 and 2027, the electric car rental market is expected to experience a CAGR of 12.64%, with a projected market size expansion of USD 11,246.65 million.
The US used car market is projected to witness a growth in market share of 3.91 million units between 2020 and 2025, with a CAGR of 1.98%.
Car subscription services enable subscribers to enjoy the use of a car for a comprehensive monthly fee that covers insurance, roadside assistance, and maintenance. Moreover, subscribers have the flexibility to switch cars with just a few days’ notice. Many auto manufacturers are now offering such services in significant regions worldwide.
Car subscription services are a rising trend in the market, providing an alternative to traditional vehicle ownership or leasing. Subscribers pay a monthly fee that covers insurance, roadside assistance, and maintenance, while also enjoying the flexibility to switch cars with short notice. Future car dealerships must start thinking of ways to offer these services in major regions globally.
New cars experience a significant depreciation of up to 20% once they are driven off the lot, and their value continues to decline rapidly in the early years. In contrast, used cars have already undergone this initial depreciation, resulting in better long-term value retention.
The new generation of buyers is more sustainable and wishes to keep the environment first when purchasing. And this is applicable to buying cars as well. Choosing a used car contributes to minimizing the environmental impact associated with car production.
The organized vendor segment is projected to continue its market dominance and experience significant growth throughout the forecast period, representing over two-thirds of the market. While the used car market is fragmented globally, developed countries like the U.S., Germany, and the U.K. boast prominent dealers such as CarMax Business Services, LLC, and Asbury Automotive Group, which collectively hold more than half of the market’s volume share.
Future of Used Car Sales and Aftersales: Key Takeaways
The growth and enhancement of market profitability have been partially attributed to the expansion of the “auto park” in various markets, along with the implementation of advanced pricing strategies for spare parts. Additionally, the stability of the after-sales business has proven crucial for retail networks during periods of economic uncertainty.
Future of Used Car Sales
Here’s a sneak peek into the future of 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 after-sales segment will face 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.
Future of the Used Car Market
Leverage online platforms and digital marketing automation to reach a wider audience. Showcase your inventory with virtual tours and 360-degree photos for an immersive experience.
Provide exceptional service, personalized assistance, and transparent vehicle information. Offer value-added services like inspections and warranties to build trust.
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.
Establish a strong online presence and actively manage your reputation. Encourage positive reviews and promptly address any concerns.
Price your vehicles competitively based on market trends. Provide attractive financing options to overcome affordability challenges and attract more buyers.
Use targeted campaigns on digital and traditional channels. Leverage social media, online classifieds, and partnerships with local businesses to increase visibility.
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 can SimpSocial help you secure the future of a used car dealership? Talk to our consultants today!
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