Diagnosing the health of the automotive market

It’s been a rather turbulent time for the automotive market, with the last few years seeing a plethora of highs and lows bought on by the pandemic, war in Ukraine and now a cost-of-living crisis.

With the market in such a state of flex, it’s more important than ever to keep your eyes on the state of the market and to understand the factors that determine how “healthy” the market currently is.

The stats to monitor

The two most important readings when looking at the health of the market are the levels of vehicle supply and consumer demand. It’s these readings that give us the most accurate view of the health of the market.

Generally speaking, a healthy market will see the levels of demand on a par with or higher than supply. Too much supply means an excess of stock on the market, and, with more choice, buyers have more options which can lead to price pressure. On the other hand, demand greatly outstripping supply is exactly the scenario that we saw in through the pandemic and lead to the unprecedented price increases that are still holding today.

It's important to note that when we display supply and demand levels in our data they are given as a percentage compared to the same period last year (year-on-year).

Taken separately, supply and demand metrics do give a good picture of the state of the market, but they only tell part of the story.

That’s why our data team have created our Market Health metric. If you’ve tuned into any of our webinars you will have heard us talk about Market Health but what is it?

Market Health is the ratio of demand over supply and it’s that ratio that gets compared year on year. It gives you an accurate view of how supply and demand are balancing out and what that can mean for the market conditions.

The example above shows how the Market Health metric is generated. But those of you of a mathematical persuasion will clearly see that the demand and supply levels do no combine to give the Market Health percentage.

This is because we include the ratios of demand and supply to give the most accurate diagnosis of the market.

The supply and demand metrics alone compare, supply year-on-year and demand year-on-year, respectively. The ratio of the two, both this year and last year, could be very different to the individual changes in supply and demand. That is why you can’t get market health by combining the supply and demand metrics and why our Market Health metric is a more accurate representation of the market conditions.

The diagnosis

Right now, the Market Health stands at -27.3% (based on year-on-year comparison of the period 13th-20th June) . This is due to constrained supply levels seeing some level of recovery compared to last year and demand seeing a decline. It’s important to note that this decline is observable when compared to the huge levels of demand we saw this time last year. Demand is currently at higher levels than was seen during the same period of normal trading in 2019.

With used car demand softening and supply growing for the first time in over a year, with Market Health down 27.3% over the prior year. But this disguises a more encouraging assessment of the used car market as demand is up 7% on pre-COVID levels.

Once you've got to grips with market health overall, you'll want to understand the impacts that has on things like pricing. As you’d expect market health does impact what we see with used car pricing with May seeing a Market Health value of -22.0%. This has caused a softening in the levels of price growth we’ve been seeing but still resulted in an 28.4% increase in used car prices in May on a year-on-year and like-for like basis. Prices are still £2k higher than they would have otherwise been and are significantly higher than last year with the average price of a used car for May this year at £17,382 vs May 2021 which saw average prices at £13,973.

So in short, we are seeing a softening in the market but this is compared to the extremely strong market we saw last year. When we compare to normal trading conditions in 2019 we can see that the current market is still incredibly strong and prices remain at unprecedented levels.

As with all data, this overall view only tells you part of the story. Market Health, and it’s contributing metrics, are also available on a micro level. We can also see the health of specific age bands, body types, fuel types right down to specific makes and models.

And all this is available for you to see using our Market Insight Tool, which puts the power of our live market data into your hands, enabling you to make decisions based on the very latest market insights.

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