September 22, 2022
The constant demand for used cars has created greater opportunities for cross-border remarketing. But there are challenges to overcome, explains Autovista24 senior data journalist Neil King.
The large consumer-to-consumer element of the used car market with no reliance on physical dealerships means used car sales have fared far better than new car registrations during the COVID-19 pandemic.
The first wave of the pandemic halted sales activity at non-digital retailers. The less pronounced declines in subsequent lockdowns exemplify how the mainstream and increased consumer acceptance of online shopping has also significantly improved opportunities for cross-border remarketing.
Problems with new car supply have exacerbated this, with markets like Spain increasingly relying on imported used cars to meet demand. This phenomenon has also sustained residual values (RVs) in exporting countries like Poland.
“There used to be huge imports of used cars from Western Europe to Poland, around a million units every year. Now it is much more limited and I see the opposite trend of exporting recent used passenger cars from Poland. This is based on relatively lower market values and the exchange rate, which is approximately 7% higher than before COVID-19,” commented Marcin Kardas, Head of Valuations, Eurotax Poland (part of Autovista Group).
The used car business has declined this year and will be hit by the cost of living crisis. However, in conjunction with ongoing bottlenecks in the supply of new cars, the pressure on household budgets also means that many consumers will inevitably turn to cheaper used cars.
Autovista GroupThe baseline scenario for 2023 assumes continued supply chain issues, very low economic growth coupled with high uncertainty and inflation above target zones. This will keep new and used car demand under pressure, but new registrations should increase compared to 2022. The used car markets are likely to pick up accordingly, as more cars are being offered.
That doesn’t mean 2023 will be a rebound year for the auto industry, but cross-border remarketing opportunities remain. The trend towards standardization of trim line names and trim levels in the European market will also make the practice easier – not only for existing online used car dealers, but also for dealer groups and even car manufacturers themselves.
Online used car dealer
As the internet has become a more acceptable platform for buying used cars faster than expected, this has given rise to several independent online dealerships such as Auto1 Group, Cazoo and Driverama.
In April 2021, Driverama announced its launch as Europe’s first borderless online used car retailer, citing the pandemic as an accelerator driving people to online retail faster. The company also noted forecasts that by 2030, 20% of all cars bought in Europe will be online.
“Cross-border remarketing, while still small, is growing with the spread of the internet and the proliferation of English through the newest generation, who are also less afraid to go abroad to buy a car,” said Ludovic Percier, RV and Market Analyst, Autovista Group France.
“For example, there is a website in France, Leparking.fr, that collects all the used car ads on websites worldwide to help you find the right car. You can choose the countries that interest you or even the distance from your location. For people living in the middle of Western Europe, this can take them to many foreign lands, sometimes closer than the other end of their own country. The key factors for going abroad are lower price, more choice and sometimes proximity.”
Aside from individual buyers traveling to procure a car, the ongoing supply shortages and increased willingness of consumers to shop online create significant opportunities for market participants when it comes to cross-border remarketing. However, not all consumers are willing to travel internationally and deal with the bureaucracy that comes with it, so a local presence is required. But that requires scale, which is the main reason Cazoo cites for its withdrawal from the mainland European market.
‘After reviewing a number of strategic options, management has concluded that it is right for Cazoo to now focus solely on its core opportunity in the UK, a huge addressable market with approximately eight million used car transactions and valued at over £100 billion annually “, Cazoo announced on September 8.
“The plan to exit the EU is based on the significant additional investments that would be required for Cazoo to further expand its operations in the EU and the conflict this poses to the company’s priorities of conserving liquidity and… without additional investments to achieve profitability capital. As a result, the company intends to begin an orderly winding down of its operations in Germany and Spain and is in consultation with its employee representatives in France and Italy.’
Another key challenge for online used car dealers is sourcing cars, especially as they scale their businesses and enter new markets. One solution is to build relationships to gain access to dislodged vehicles.
In February, the Auto1 Group, one of the largest European online dealers for the purchase and sale of used cars, concluded a deal with Munich-based Allane Mobility – formerly Sixt Leasing – in order to be able to supply around 10,000 lease returns and fleet vehicles to secure per year.
Standardization of equipment and equipment line designations
Size is less of an issue for established large dealer groups and automakers’ own dealer networks. You may be hampered by borders, but that doesn’t mean cars can’t be sourced elsewhere. A central challenge, however, is the inconsistent naming conventions of equipment lines and/or standard equipment.
“The Volkswagen trim line Carat in France, for example, means nothing in Germany. Specifications may differ, but common version names at least provide clarity,” commented Andreas Geilenbrügge, head of ratings and insights at Schwacke (part of the Autovista group).
This inconsistency in both trim line designations and standard equipment has not escaped the attention of automakers, with Geilenbrügge citing heated seats as an example. They are not essential equipment in new cars in southern European markets such as Spain, but their absence limits a car’s chances of being re-marketed in northern Europe. The automobile manufacturers are therefore examining measures such as the Europe-wide standard equipment of seat heating from the second equipment line upwards.
This cannot completely eliminate international prejudices, according to which cars newly registered in a country are often valued lower than domestically registered cars.
“A car bought new in Germany and driven all its life in France is not worth as much to a dealer as the same car with the same specifications, newly registered in France. So consumers risk losing money trading in cars imported into France compared to a car bought new in the country,” Percier commented.
Conversely, consumers may not be willing to pay the same amount for an imported used car as for one that is only registered in their home country.
One manufacturer that has sidestepped conflicting trim line naming and specifications – and seemingly international prejudice as well – is Tesla. This has enabled, for example, the much-noticed export of used models from Germany to Norway.
“We are heading towards a future universal European market and some automakers like Tesla are already unifying their offering to sell cars where demand is high and supply is low. Most people still buy a car in their own country, so brands have to adapt to providing cars where they are needed. This applies to the European market, but also to the local market between areas and cities,” said Percier.
Carmaker as a used car broker?
Looking to the future, Percier noted that Features on Demand (FOD) could eliminate the differences in standard equipment in markets. “With the upcoming FOD in cars, everyone will be able to activate every option on the car even after five years. The only differences will be the engine, gearbox and the aesthetics of the car – that’s it.”
With end-to-end equipment lines and equipment, automobile manufacturers have greater scope to enter cross-border remarketing themselves. One approach could be an agency model, where automakers can actively offer to buy cars from a dealer when there is higher demand in another country. However, this also works passively as dealers can identify cars for sale in the car manufacturers’ European dealer network. You can then source them, with the automaker taking responsibility for the paperwork, financial transaction, and logistical arrangements.
Whatever the future holds, cross-border remarketing will remain and will continue to gain momentum with increasing transparency, both in terms of uniform equipment and names and in terms of online presence.