How are used-car markets adjusting to Europe’s COVID-influenced economies?

14 April 2021

2021 started with another series of lockdowns. Economic forecasts for the year have taken another hit. That said, government stimuli continue to soften the impact on market participants. And what is more, most used-car markets have proven more resilient than many expected. So what does 2021 mean for these markets? Chief economist Dr. Christof Engelskirchen, Autovista Group’s market specialists Ana Azofra (valuation and insights manager, Spain), Johan Trus (chief editor, Sweden) and Yoann Taitz (chief editor & valuations manager, France) share their views and advise on what measures to take to manage risks in this uncertain time.

The pandemic has left its scars on families and businesses alike as we continue the struggle against COVID-19. How did events unfold during the first quarter of 2021 – were there even some positive surprises? In Sweden, where dealerships had stayed open across the whole of 2020, the new normal may have been achieved much quicker than elsewhere. As Trus points out: ‘we could witness that OEMs and importers have adapted to the new reality and are organising virtual events and product demonstrations. Some have been set up as normal business presentations but others are more innovative, such as following a person’s test-drive. In contrast to other European markets, launch events by dealers to private customers are possible in Sweden, as dealerships have remained open. The only restriction is the number of customers in the showroom.’

Used-car markets have developed quite resiliently into 2021. In fact, very few used-car markets have come under pressure. Negative momentum on new-car markets is turning into positive momentum for used-car markets. Taitz offers one explanation: ‘The scarcity of semiconductors is disrupting supply chains again, resulting in a shortage of supply of new cars. Consequently, consumers are turning to buy a used car instead, which then helps residual-value formation.’

Southern Europe, in contrast, saw some of the most restrictive lockdowns, which are continuing into 2021. The economic consequences have been more severe in Spain than in any other European market.

‘The magnitude of the economic impact is very visible, especially in Spain, which experienced an 11% drop in GDP in 2020. We have faced new waves of infections, at different times but with similar intensity. The situation has also been hard in Portugal at the beginning of the year with a very restrictive new lockdown,’ according to Azofra. It is difficult to see the light at the end of the tunnel, but ‘the fast authorisation of vaccines by the EU has been important. It improves the outlook and facilitates the start of thinking about, and working on, the economic recovery.’

The heightened disconnect

Autovista Group experts have voiced concerns that supply-chain issues for new-car markets and substantial government-funded incentive schemes mask some of the challenges used-car markets will soon face. ‘We can confirm for 2020 and Q1 2021 that new-car markets are more and more disconnected from used-car markets. Battery-electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs) are being pushed into the new-car market, while electrically-chargeable vehicle (EV) transactions in used-car markets remain subdued. Diesel engines still represent 55% of total used-car sales,’ Taitz points out.

This disconnect may not be felt as strongly in Sweden, where the negative impact on the economy and private consumption was subdued. However, it may be more pronounced in Spain. Azofra remarks that ‘the effects of European aid programmes have not materialised yet. Private consumption has contracted sharply. In Spain, sales of new cars dropped by more than 50% in the first two months of 2021.’ In terms of BEV adoption, Azofra points out that ‘there are continuous challenges, both in the new and used-car markets. The high price and the lack of infrastructure made it impossible for these markets to get off to a better start in 2021. BEV sales in Spain fell by 64% in January and 36% in February, starting from already low figures in 2020.’

Crisis, what crisis?

‘The pandemic has not been a crisis for used-car markets,’ says Engelskirchen. ‘In fact, it has finally helped some things over the finish line that had been long in the making, in particular the digitisation of the sales and marketing value chains.’ In addition, market participants have addressed certain issues during the past 12 months.

Supply-chain disruptions allowed some of the demand for cars to be directed to used cars. This helped clean up some unhealthy stock levels. Several OEMs have proven very skilful in adjusting the sales-channel mix during this year,’ according to Taitz, and Trus agrees. He points out that ‘OEMs and dealers have learned that they need to be innovative and always try to come up with new ways of reaching their customers. In order to survive as a business, you need to adapt.’

Tactics and digitalisation

So, what should OEMs, dealers and leasing companies do during these challenging times? ‘Avoid discounting activity,’ remarks Azofra, ‘as they will only help in the short term but have a long-term negative impact on remarketing. Furthermore, leverage flexibility, e.g. around digitised business processes and sales channels.’

Taitz advocates that market participants should pay special attention to sales-channel management. Furthermore, ‘due to the trend towards leasing, OEMs and dealers have to pay special attention to configure their demonstrator vehicles and tactical registrations to be favourably equipped from a used-car market perspective.’

Putting much more attention on the future earning potential of a business or idea, the investor community has clearly moved ahead of immediate pandemic concerns. So when will we consider COVID-19 a ‘thing of the past’? ‘Economic momentum will return during the second half of 2021, but it will take time to recover. Some sectors will take longer than others, as will some regions’, according to Azofra. ‘Manufacturers and large leasing and mobility companies have their minds on the future and are already working on post-COVID-19 scenarios.’ 

Taitz adds that, ‘new economic momentum will show when most people have been vaccinated.’ Trus confirms, ‘that the main variable in the equation is the speed of vaccination.’ Even though COVID-19 will hopefully be a thing of the past soon, Trus expects some things to become a permanent fixture. ‘Flexible/home working is here to stay, while travel patterns will probably take longer to get back to normal, if they ever will.’

Our next webinar on the impact of COVID-19 on Europe’s used-car markets will take place on 22 April. Sign up to attend here.