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Improving the used car business in Europe


To this day, the used car business is driven mainly by third party companies, independent used car dealers and independent online vehicle listing platforms and portals. However, we expect that the franchised dealer channel will begin to gain ground as OEMs and their dealers rebalance their business models to generate additional profits from the downstream value chain. In doing so, they will also grow their share of the used car market.

Responding to the commercial need to use as much of their production capacity volume as possible, OEMs have traditionally focused on their prime business objective: the wholesaling of new cars. The preferred sales channel for this activity is, of course, their authorized dealer network. Logically, however, the latter's primary business objectives differ greatly to those of the OEMs: Mainly interested in maintaining their own profitability, dealers refuse to accept being continually "force-fed" with an endless oversupply of new cars via wholesale channels.

To "dispose" of the surplus new car production that they cannot supply to their franchised dealer networks, OEMs are therefore using alternative sales channels to improve their market share. For example, OEMs sell large volumes of surplus production via what is often referred to as the "second price" channel. These are cars that are often sold with buyback agreements to shortcycle car (SCC) business users such as car rental companies. These cars return to the market soon after initial registration/delivery and then need to be re-sold as "young used" (or "newsed") cars.

One interesting take on the overall car business is therefore the understanding that OEMs do more than merely produce new cars: They also produce significant volumes of used cars relative to natural demand. These used cars come in different forms: Young used cars have been licensed for up to 6 months, while traditional used cars have been on the road for up to 48 months. The latter group includes cars that are leased or "fleet managed" by the OEMs' own financial services company, before being returned for resale after the lease period.

Looking at these activities, it seems increasingly obvious that OEMs are not yet paying sufficient attention to the growing used car business.


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