Pricier, technology-laden new vehicles are driving consumers to buy used vehicles

Today’s automotive business model is under threat as a growing share of consumers purchase used vehicles over new ones, or eschew vehicle ownership altogether.

A new report by Automotive from Ultima Media outlines how new regulations, technology and even OEMs’ own sales and leasing strategy are driving these changes, with significant implications for supply chains and future manufacturing.

According to Daniel Harrison, automotive analyst and author of the report, ’Automotive headwinds align into a perfect storm’, tightening emissions and safety requirements, together with vehicle connectivity and electronics, have contributed significantly to higher new vehicle prices. The unintended consequence is that consumers increasingly perceive used vehicles as better value.

“This is particularly so in the small car market where the margins are slim, and the regulations could potentially result in some lower cost entry levels cars becoming unviable for OEMs to sell,” says Harrison. 

A compounding factor is the leasing market, which has been a very successful sales strategy for OEMs and has allowed more consumers to obtain high value new vehicles. However, this marketing strategy has also meant that when the vehicles go off lease and are remarketed, they depress used car prices and make them more attractive to consumers.

A third factor that could challenge business models even further is the growing popularity of shared mobility. A substantial shift to ride-hailing services could ultimately reduce sales further. And there are societal shifts already underpinning this trend. Younger people, in particular, are opting for more flexible ‘on-demand’ and ‘pay-as-you-go’ mobility options.

“For OEMs, this ultimately means a dwindling and ageing demographic that are willing and able to purchase vehicles and this could have profound implications for future business models,” writes Harrison.

A full copy of the report, ‘Automotive headwinds align into a perfect storm’, is available for download below by registering or logging into Automotive Manufacturing Solutions.