Discounting is returning to the UK new car market, as Nick Gibbs’s piece recently detailed on Autocar Business. It’s welcome news for car buyers after the staunch ‘no discounts’ policy during Covid rolled directly into the constrained supply of the chip shortage, but less so for car makers and dealers.
Many car makers are talking a good game about maintaining the ‘no discount’ policy, particularly with one eye on the agency shift, yet it’s hard to see that line being held when presented with losing sales to direct rivals who are more than happy to start discounting. The dominoes will surely start tumbling – or will they?
Nick’s piece quoted Pat Hoy, automotive industry researcher and head of What Car?’s Target Price mystery-shopping team. What Car? Target Price, a product of our sister brand, is what is considered a fair price for a new car based on this mystery shopping.
“All OEMs were in the same boat during Covid and the chips crisis,” says Hoy, who has looked in even greater detail at the numbers behind discounting. “OEMs couldn’t unilaterally increase production to gain market share advantage. But now they can, and once one or more starts doing so in earnest, these actions will cascade.”
Hoy says that pre-pandemic in January 2020, the average Target Price discount was £3200 per car, or 9.1% off the list price. It bottomed out at £1560/3.5% per car in July 2022, and now it has steadily risen to £1802/4%.
“A key indicator we look at to help assess the direction of travel for discounts is the level of willingness to discuss and countenance discounting among dealers,” says Hoy. “This is rising, and currently stands in stark contrast with the solid ‘no discount’ feedback we experienced in the depths of the chip crisis. Dealers are more aware that competitors (both same brand and from alternative brands) may well be pushing discounts to take buyers out of the market and to shift increasing stock coming through.”
Hoy cites “dealer sales teams that have got used to defending their margins and residual perception among buyers that low discounts are the new normal” as two reasons why a return to discounting may be gradual. Within the speed of that return lies an opportunity for a car dealer or maker looking to protect margins.
To illustrate this point, the Volvo XC90 is cited by Hoy as a car where mystery shopping reveals discounts ranging between 4% and 12%, depending on where you buy it.