IQ

Insight

Quarterly

Q4/2024

The UK used car sector faces a dynamic future, shaped by a complex mix of electrification trends, shifting consumer preferences, economic pressures, and supply constraints.

Automotive players who can effectively navigate these challenges, stand to gain a competitive advantage and capture new market opportunities in upcoming years. Central to the sector's transformation is the evolution of the UK car parc – a trend that will profoundly impact vehicle availability, demand, and pricing across fuel types and vehicle categories.

Changing dynamics in the UK car parc

The total size of the UK car parc is projected to decline by 4.47%, when comparing the 2027 forecast to 2024. This shift reflects a gradual return to pre-pandemic levels in both new car registrations and used car transactions. However, the landscape has changed significantly due to supply chain disruptions and the gradual phasing out of internal combustion engine (ICE) vehicles. Several factors are driving this shift from ICE vehicles, including the increased availability of new energy vehicles (NEVs), changing OEM production priorities, and evolving consumer preferences.

This transition is also marked by a dual challenge for dealers who must adapt to a declining volume of traditional ICE vehicles, while capitalising on the growth of the electric vehicle (BEV) segment. With manufacturers prioritising limited ICE production for specific markets, consumer choices have narrowed. Meanwhile, recovery in used vehicle availability following the 2019-2023 supply shortages is still ongoing, meaning that demand for certain vehicle types – especially low-mileage, high-quality ICE cars – is likely to surpass supply.

Resilience in used car sales

Despite the challenges, the UK used car market has shown resilience with six consecutive quarters of year-on-year sales growth. Used vehicle transactions are projected to rise from 7.4 million in 2024, to nearly 7.9 million by 2027. However, this is significantly lower than the total annual transactions in 2002-2008 and 2014-2019.

This gradual growth underscores the ongoing appeal of used cars, even as BEV adoption accelerates in the new car market. Demand for BEVs in the used market is rising too, albeit slowly. Resulting in a split market where BEVs become increasingly affordable, while ICE vehicles experience price increases due to dwindling availability. For used cars aged between 0-4 years old, this trend could drive higher values for well-maintained ICE models that appeal to consumers either unwilling or unable to transition to electric vehicles.

As the UK nears its 2030 ban on new ICE vehicle sales, dealers will need to strategically balance stock profiles, providing a mix of in-demand ICE and early NEV models to meet varying consumer needs and preferences. While consumer interest in BEVs is lagging behind new car supply, demand is slowly increasing, so dealers need to continue to meet the needs of consumers who are unwilling or unable to transition to electric.

The evolving fuel type mix

The composition of the UK used car parc is evolving rapidly. Battery electric vehicle (BEV) transactions increased by over 50% in the first half of 2024, reflecting a rising interest in sustainable alternatives. While EV market share has reached an all-time high in the used sector, petrol and diesel cars remain the predominant choice due to lingering affordability and charging infrastructure concerns. We share more insight into new car registrations in our new car forecast [insert link].

The supply disruptions during the pandemic, which reduced new car registrations by over three million, have permanently altered the composition of the used car parc. Going forward, ICE vehicle share – particularly diesel – is set to decline significantly by 2027. Diesel/mild hybrid electric vehicle (MHEV) registrations, for instance, are expected to drop from 6% in 2024 to around 3% by 2027, while petrol/MHEV registrations may fall from 51% to 35%. In contrast, BEV registrations are forecasted to rise from 21% to 34%, signalling a substantial market transformation.

Across the UK car parc as a whole, these shifts are even more pronounced. The number of ICE vehicles is expected to decrease significantly by 2027, with diesel/MHEV cars falling from over 11 million in 2024, to just under 9.5 million in 2027. Meanwhile, the BEV parc is anticipated to expand from 1.1 million in 2024 to 1.9 million by 2027, representing a growth rate of 184%. For dealers, these trends emphasise the importance of sourcing a balanced inventory that includes desirable ICE options, as well as reliable NEVs to cater to a broad range of consumer preferences.

Used vehicle parc forecast 2024 - 2027

Source: Cox Automotive

Affordability challenges and economic indicators

The current economic climate presents a mixed picture. While UK economic indicators such as GDP growth and reductions in inflation and interest rates suggest the potential for gradual recovery, cost-of-living pressures are expected to persist. High vehicle prices, coupled with modest wage growth and declining real earnings projections for 2026-27, mean that affordability will remain a pressing issue for many consumers.

As new car prices continue to rise then, outpacing wage growth, many consumers are likely to turn to the used car market as a more financially viable option. The affordability challenge is not unique to the UK; both the UK and the US are seeing new car costs exceed affordability for a significant segment of the population. Consequently, used car sales are likely to remain robust, despite economic uncertainty and rising interest rates may temper demand, particularly for higher-priced vehicles. Fluctuations in new car sales will influence the supply of used vehicles, directly affecting the flow of vehicles entering the secondary market. As a result, used car sales may continue to grow but at a slower pace, with affordability and availability likely to remain a central factor influencing buyer decisions.

Although these economic challenges may exert downward pressure on the market, continued interest in supermini and family car categories, coupled with a gradual shift toward BEV options, is likely to sustain demand in used cars. Legislative changes supporting electrification, such as clean air zones and emission-based taxes, will also influence consumer choices and increase the availability of both new and used BEVs over time. While ICE models will retain residual demand post-2030, dealers must be prepared for an eventual decline as the industry gradually phases them out.

Shifting sales strategies and the agency model

Several OEMs are shifting toward a hybrid agency model, where they work more closely with dealers to manage inventory and ensure stable residual values. By encouraging dealers to focus on older, higher mileage used vehicles, manufacturers hope to protect against losses to competitor networks and minimise distressed pricing, thereby safeguarding residual values across the supply chain.

For dealers however, this shift presents a new set of challenges. Adopting this model may benefit certain segments, but it also raises expectations around service and brand reputation. As consumers expect a consistent brand experience across dealer networks, retailers must balance meeting these elevated standards with maintaining profitability.

The agency model is also reshaping relationships between dealers and consumers. By taking greater control of pricing and inventory management, OEMs seek to create a streamlined, consistent buying experience, particularly for NEVs. However, this model may reduce dealers’ flexibility to tailor prices and promotions to local market conditions, impacting their ability to respond to fluctuating demand.

Looking to the future

Although used car transactions fell by 12% between 2020 and 2023, compared to the 2016-2019 period, forecasts suggest a gradual recovery to 2019 levels by 2027. The baseline forecast for 2025 anticipates a very small increase in UK used vehicle transactions, marginally exceeding the historical average for 2001-2019. Given the high price of new cars and the lingering appeal of ICE vehicles, the used car market is positioned for growth. As BEV options become more accessible, demand for used cars – both ICE and NEV – is likely to remain positive, with a steady stream of potential buyers.

To capitalise on these evolving market dynamics, the market needs to adopt a proactive, future-focused strategy. Meaning, rather than reacting to individual changes, the automotive sector should focus on building resilient, flexible business models that enable players to anticipate and respond to emerging trends. This includes maintaining a balanced mix of in-demand ICE and NEV vehicles to cater to varying consumer needs, while offering flexible financing options to help consumers manage affordability challenges. Investing in after-sales services and repairs can add revenue streams and foster customer loyalty, while the need for a robust omni-channel presence is still essential.

By embracing these strategies, the automotive sector can navigate the evolving market with confidence, ensuring sustainable growth and competitive positioning for the future. The transition to electrification presents both challenges and opportunities, but those who adapt early will be well-equipped to thrive during this transformative period in automotive history.