Second hand car market goes digital?

For garages that go in for car sales. disruption in the second-hand market may point towards the need for digital marketplaces

Published:  10 June, 2022

A traditionally fragmented and localised market, the UK second-hand car sector has undergone a pandemic-fuelled boom pushing up prices and, more recently, a sharp slump in actual sales, as would-be buyers get fed up paying a high premium for a used car, particularly when a new one is cheaper for those prepared to wait.
The UK car market was characterised by supply shortages for most of 2021 and that continues to be the case, thanks to an overall shortage of cars, new and old. Demand for electric cars is particularly acute, while the average cost of a second-hand car has risen by about £3,000 in the past year. In the US, it is a similar tale with second-hand car prices rising sharply. In September prices were up almost 25% on the year before. Against a backdrop of rising demand and prices, the disjointed nature of the UK market means that motorists are not purchasing vehicles in the most efficient or cost-effective way. However, the days of relative market disfunction may be numbered. Change is afoot within the industry, change that will benefit distributors, sellers and consumers.
In years gone, by the automotive industry stood out for its reluctance to embrace digitalisation, but that is no longer the case. The current market pressures are encouraging a more rapid transformation towards digital tools for pricing and purchases. This is in the form of online B2B marketplaces, which are driving the evolution of the second-hand car market, enabling greater competition and liquidity, wider distribution networks, and easier price discovery, as well as powerful data driven recommendations that benefit buyers, sellers and marketplace owners alike.
The need for change is clear. Research by AA Cars, comparing second-hand cars between 2019 and 2021, showed that demand for some models was so strong that prices are increasing in value with age. The price of a three-year-old Mini Hatch in 2021 was 57% higher, with Audi A3 models up 46% and Ford Focus prices up 43%.
The reason for the price pressures lies with a V-shaped sales recovery amid component shortages in the industry, ranging from semiconductors to steel, and because of the just-in-time nature of supply chains. Consulting firm AlixPartners forecasts that these supply chain problems will cause automakers to build 7.7 million fewer vehicles globally than they would have if they could get all the parts and raw materials they need. One consequence of the price rises in the UK is a discernible decline in sales, which have dropped to their lowest levels in six years. Many people are holding off on their next car purchase.
Buyers should not have to delay though. More efficient and transparent marketplaces can help mitigate the impact of the shortages and disruption. The onus is on operators of B2B marketplaces to provide solutions that loosen up the markets downstream that impact consumers. The benefits should cascade rather than trickle. Imagine being able to go online to one centralised digital marketplace offering transparency, speed and recommendations on alternative models if the desired one is not available.
As an example of what’s possible, take a look at CarNext, the online platform for vehicle sales and auctions. CarNext sought a solution capable of serving thousands of concurrent bidders, and hundreds of internal users across Europe, available to trade on a 24/7 basis all year round.
It now uses a digital B2B marketplace developed by NovaFori. Benefits of the marketplace include wider distribution networks, greater competition and liquidity, and easier price discovery by using various auction methodologies. Normally, buyers compete for goods by bidding incrementally rising prices in a bidding process that can be open or closed. As with auctions anywhere, the goods are normally sold to the highest bidder if the bid is greater than the reserve price set. The marketplace gives access to a pool of thousands of vehicles rather than just a handful, making it possible for professional buyers to browse and purchase vehicles that most suit their needs and offer best value for money, rather than simply having to take what is available at the garage. Data science deployed by NovaFori enables CarNext’s B2B marketplace to recommend vehicles based on previous buyer behaviour. The recommendations can be refined based on user actions on the platform, such as searches, bids, substitutions and won lots, resulting in tailored recommendations boosting trade volumes.

More profit-making opportunities
As a result, suppliers can access a wider range of buyers and trade volumes are higher, giving suppliers more profit-making opportunities. Professional traders are able to bid on a wide variety of CarNext cars in 24 languages and across multiple countries in Europe. Crucially, the marketplace can show that the highest price has been achieved across its portfolio, thanks to a combination of auction mechanisms and cross-border trade capability. NovaFori's recommendation engine contributes to the volume of vehicles sold on the platform, with a significant increase observed in average sales prices.
This technology is already driving marketplaces in other industry sectors as diversified as insurance, IPv4 address trading, derivatives trading, art and antiques. These B2B markets are able to incorporate data science in the form of machine learning in such a way that markets have the capability to make meaningful recommendations. The algorithms used are also powerful tools for a marketplace owner, because they allow for adjustments to be made to auction methodologies to get the best price for a vehicle, based on a combination of past auction performance and predictive analytics.
Creating a comprehensive online system would help ease demand for vehicles creating a centralised marketplace, thereby making it easier to provide alternatives. NovaFori designs marketplaces so that they can offer alternative options if a particular model is unavailable. So, for example, if a Toyota Auris was not available, it may suggest an alternative such as a Volkswagen Golf R or Vauxhall Astra or Hyundai Ioniq, based on key features between vehicles. But it goes beyond recommending similar alternatives to include actual car specifics, add-on features, type of engine, miles on the clock, delivery time, price and more. The algorithms offering recommendations are not just powerful tools for buyers and sellers, they help marketplace owners fine-tune sales channels to foster marketplace optimisation. Using the valuable user-activity data captured, it is possible for marketplace owners to retain and re-engage buyers to optimise the marketplace. As digitalisation mixes with the disruption caused by the pandemic and a rapidly changing dynamic in the automotive sector, there is an inevitability about the trend towards automotive marketplaces. Their efficacy and benefits are obvious, and while it may involve investment, and even a radical rethink, car sales businesses that are willing to take the plunge will position themselves well to drive the future of the industry and reap the rewards digital transformation offers.

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