Stock Management – Meeting the Used Car Affordability Challenge

INFLATIONARY pressures are increasing and have implications for used car retailing and stocking with rising costs and the potential for an increase in interest rates.

The last time UK Base Rates rose was August 2018, when they went up to 0.75%; you have to go back to the very start of 2009 to see Base Rate exceeding 1%. A generation of car buyers and people in car sales have only known exceptionally low interest rates.

With the Bank of England Monetary Policy Report for November stating that an increase in Base Rate will be ‘necessary’ to combat rising inflation, there are, as MotoNovo’s MD Karl Werner observes, potential implications for the used car stocking mix.

Used car prices increased 2.9% on the month to September 2021, leading to a cumulative increase of 21.8% since April 2021 according to the Office for National Statistics (ONS)

RAC and AA Data showed that diesel costs hit a record high of 147.94p per litre, on November 1^st, just a week after petrol hit a new peak of 144.35p per litre  and energy prices are expected to keep rising for the next 18 months.

All of these are feeding into inflationary pressures that, according to the Bank of England’s new chief economist, could exceed 5% early next year. Such a figure could see inflation overtake the ONS’ expectation for the underlying growth in real average wages.

Rising costs are likely to see potential buyers looking towards used cars and, indeed, lower-priced used cars than they may have anticipated. In a challenging used car stocking purchasing environment, recognising the consumer impact of an upward inflationary trend not seen for many years and the potential it brings for rising interest rates is something dealers should consider in their stocking mix.

Werner said: “Typically, consumers have a clear idea of their budget when it comes to purchasing a used car; however, rising inflation is set to impact their budgeting processes in a manner many may not have experienced.

“An adjustment to a dealer’s stocking mix, which has to an extent already been forced by stock shortages, and the use of finance to illustrate monthly costs to car buyers are steps dealers can take now to meet the needs of consumers for a car they can afford.”