What does 2024 hold for the automotive industry? Phillip Williams, Co-Founder and Director of Oodle Car Finance, predicts a bumpy road for the first six months – but a brighter outlook for the second half of the year.
THE automotive industry has always been a remarkably resilient trade and we’ve seen this in abundance in 2023. Despite the cost of living crisis and the Russian invasion of Ukraine, both sales and prices have held up.
The war in Ukraine and Israel-Hamas conflict are creating uncertainty
However, as we enter the tail end of the year, we’re starting to see a downturn in activity. Car prices are stagnating and dealers are being more cautious about what they buy. The Israel-Hamas conflict is exacerbating this, creating even more uncertainty in the market. Supply chain delays are also continuing to prove a challenge. In some cases, it can take dealers two months to get a car through their workshop and out on to the forecourt. In that time, they might see a 10% price drop which clearly affects their profit margin.
In response to these conditions, lenders are tightening up their lending criteria. Dealers tell us that they’re already seeing a drop in acceptance rates across the main finance companies.
We’ve yet to see the full effect of the cost of living crisis
Looking ahead to 2024, my feeling is that this downturn will continue for the first half of the year. Until now, many people have largely weathered the cost of living crisis. However, house prices are still falling and both rental prices and prices in the shops are very high compared to two years ago. As the cold weather kicks in, I think all these factors will increase the pressures on household budgets. Finance companies will feel the impact of this in the form of a reduced volume of applications while dealers are likely to experience reduced footfall and fewer people wanting to test drive their cars.
However, as we get towards the end of the second quarter, as long as the situation in the Middle East doesn’t escalate, we should see interest rates begin to fall and inflation respond. This will put more money in people’s pockets, giving the industry a better chance to bounce back.
Responsible lending will be key
To navigate the challenges that lie ahead, we’ll need to focus more strongly than ever on supporting our existing customers for the duration of their agreement. As a responsible lender, this means making sure that finance is affordable now and in the future, and offering additional support when customers experience bumps in their finance journey. We’ll also continue to support our dealers, helping them adapt to regulatory changes and working in partnership with them to put customers in the right car for their circumstances.
What dealers can do
Dealers are going to need to make sure that they’ve got the right stock that fits all kinds of budget. People will always want cars. But the kind of car they may be able to afford over the next six months or so may be different to what they’ve bought in the past. The battle between dealers for good used cars priced £6,000 to £9,000 is likely to intensify as customers who previously might have bought more expensive cars reduce their budgets.
Like Oodle, dealers will need to focus on customer retention, offering speed together with clear, transparent communication and excellent service to encourage customers to return to their dealership at the end of the finance term.
Used EVs may represent a new opportunity
In any downturn, there are always opportunities. The used EV market has been surprisingly buoyant and even Teslas are starting to look affordable to customers looking to go electric. So this may be an area where dealers can pick up sales even if they haven’t done much business in EVs before.
A slowdown in activity is also a good opportunity for dealers review the status on their regulatory requirements, such as Consumer Duty and seek out any further efficiencies in their operations.
Make sure you’re ready for the upturn
The lesson we learnt from Covid is that you have to be ready for the upturn. For dealers, this means running your business as leanly as possible (e.g. not carrying excess stock), focusing on good customer outcomes and using the challenging times ahead to plan effectively so you’re well positioned to take advantage of the upturn. The automotive industry excels at bouncebacks – so make sure you’re part of it!