In this exclusive AM 'guest opinion' piece Volkswagen Financial Services UK chief executive, Mike Todd, reflects on ongoing market challenges and offers insight into adapting to ensure consumers' needs are met.

There’s an old adage that cars depreciate in value as soon as they’re driven off the forecourt, but last year saw the start of an unprecedented trend that challenged this perceived wisdom.

Demand for used vehicles is at an all-time high right now, fuelled by the shortage of new cars as a result of supply chain bottlenecks caused by the pandemic and global semiconductor shortage.

Consequently, this has redirected consumer spending to used vehicles and in many cases used vehicle prices are rivalling their new vehicle counterparts – something that was unimaginable just a few months ago.

But with customers still experiencing significant wait times for new vehicles, pent-up demand for used cars is unlikely to subside any time soon.

So what can we expect from this sector of the market over the next 12 months?

Firstly, I think that used vehicle value realignment will be drawn out over several months rather than an overnight drop. Our teams at Volkswagen Financial Services UK are forecasting a continued period of stability in used vehicle prices until semiconductor supplies return to normal, pre-pandemic levels.

It’s only at this point we expect there to be a gradual decline in the pulling power of used vehicles.

Contract extensions

However, even when new car supply catches up, we can’t ignore the fact that the market has been well below its usual levels in recent years, so it’s likely that strong prices for used cars will continue until balance is restored.

This is why, whilst new supplies remain restricted, our contract extension offerings are being accepted by many customers.  We have several options that allow customers to extend their current finance agreements with us, but most notably our new Short Term Solutions PCP package, which allows customers to finance the optional final payment of their current vehicle for 12 months – and we aim to keep their monthly payments the same whilst they wait for the new car to arrive.

We’re also supporting retailers to capitalise on the intense demand for used cars with several customer-facing offers including deposit contributions, competitive APRs and various aftersales offers.

However, we mustn’t forget the importance of digital marketplaces for used cars. In the digital age, it’s paramount that websites show affordability and finance options in the form of monthly payment and calculation services.

I’m pleased to say that over the past few months, we have supported retailers to provide this type of functionality on their own websites, as well as with Volkswagen Group brands’ used vehicle locators and select digital partners.

Sustaining sales

Another big consideration for the used car market this year is whether retailers can sustain their sales activity with lower levels of stock.

The importance of being able to source stock for the forecourt can’t be underestimated, which is why we are committed to supporting the Volkswagen Group network with returning contract hire and PCP vehicles.

So to bring this all together, the central point I want to highlight is that, to be successful in this market, businesses must offer car buyers both digital and physical forums to purchase a used car.

People like the familiarity of talking things through with a retailer in person, whilst also wanting the convenience and speed that online marketplaces offer.

All in all, I think the used car market will remain very buoyant in 2022 and it’ll be interesting to see how this sector performs once the wider market stabilises a little more.

Author: Mike Todd, chief executive, Volkswagen Financial Services UK