New and used cars: restoring balance to supply and demand

By Mike Todd, CEO at Volkswagen Financial Services UK

We never know what we’re truly capable of until we’re challenged. The UK has navigated the turbulence of the pandemic to now find ourselves where we are today - teetering on the brink of recession. But resilience is a powerful force, and our industry has shown it has that in spades. The outlook for 2023 is already more promising, and I’m optimistic about what’s to come in the year ahead.??

The combination of supply and demand is one of the simplest rules of economics. This time 12 months ago, demand for used vehicles was at an all-time high, fuelled by the shortage of new cars being produced due to Covid-induced supply chain bottlenecks.

That demand for used vehicles remains strong, despite the wider economic backdrop we’re all currently living through. Let’s not forget we lost a whole year’s supply of vehicles during the pandemic, and we’re still seeing the repercussions of that. A huge 600,000 fewer used cars changed hands in 2022 than in 2021, and numbers today are still down 13% compared to 2019’s total.

With fewer new cars being manufactured, people held onto their cars for longer. That’s now starting to change, and this year will be an important one for restoring balance within the market. ?

New cars make a comeback

The tide is turning, and we’ve reached a pivotal moment after a tumultuous few years. New cars are returning to the roads in droves, with last month setting the tone for those to follow.?

Recent data from The Society of Motor Manufacturers and Traders (SMMT) brings welcome news - the new car market grew for the seventh consecutive month in February. That’s the best start to a year we’ve seen since 2020, and a huge comeback from 2022’s 30 year low.

I expect that trajectory to continue. The latest market outlook anticipates 1.79 million new car registrations in 2023, with a further almost two million expected to join the road in 2024. Naturally, this will cause a domino effect, stocking the pipeline of used cars and importantly, redistributing consumer spending between both new and used vehicles.

Electric vehicles supercharge the used market

On the topic of growth, we have to talk about electric vehicles (EVs). I read articles about them daily – often good, sometimes bad, and at times, ugly. And as the cost-of-living crisis continues to grip individuals, households, and businesses, it’s fair to say that the general increase in electricity prices we’re all experiencing is a factor in adoption consideration.

Yet EVs continue to generate a lot of consumer interest. The steady rollout of charging infrastructure happening in all corners of the UK is giving EVs a more physical presence. More and more people will be seeing them when they do their weekly shop, for example. When we pair that with growing ambitions from both consumers and businesses to make more environmentally friendly decisions, EVs are increasingly being propelled into the spotlight.

Because of those reasons, the used EV market has seen exponential growth. A record number was sold last year, with a huge 38% more battery electric vehicles (BEVs) going to new owners than in 2021.

It’s the responsibility of organisations like ours to help customers make the transition to their first EV, and to equip them with the knowledge they need to make that journey confidently. We recognise that’s about so much more than the hotly discussed affordability of EVs. It’s all that goes with EV ownership: home charging, provision of public charging, trip planning, and vehicle value retention.

VWFS is dedicated to growing EV awareness, and a big part of that is ensuring the products and services we offer best support consumers on their journey to electric.

A change of vehicle is a big decision for most people and making the switch from the familiarity of a petrol or diesel model is an even bigger one. Our mission is to make that as easy to do as possible.

After a few years of unexpected hurdles for the industry, stability is being restored and consumers will once again be empowered with something incredibly valuable – choice. And we’re here to support customers in whatever that choice is for them. ??

Source: Society of Motor Manufacturers and Traders (SMMT)