In a remarkable turn of events, used cars are being sold quicker than ever before on Auto Trader, yet the online vehicle marketplace finds itself unable to capitalize on this unprecedented demand.
The company saw its shares decline by 60.5p, equating to a 7.2 percent drop, closing at 783p. This decline occurred despite a reported revenue increase of 8 percent year-on-year, totaling £302.5 million for the six months ending in September.
According to Nathan Coe, Auto Trader’s chief executive, the only negative aspect in the company’s results is the rapid sale of vehicles. “Cars are being sold exceedingly fast right now,” he stated. “Even though dealerships are moving 5 percent more cars through Auto Trader, this surge hasn’t translated into increased revenue due to our business model.”
Auto Trader operates on an advertising model that requires retailers to pay for leased advertising space on the platform, regardless of their sales success.
This swift turnover means that vehicles are listed for shorter durations, which in turn prevents the high volume of sold cars from boosting advertising revenues.
Additionally, a recent ruling from the Court of Appeal mandating motor finance companies to disclose commissions could have short-term repercussions for Auto Trader’s operations.
Analysts from Panmure Liberum have raised concerns that Auto Trader’s Autorama brokerage might be impacted by this decision, estimating a potential financial hit of around £20 million. However, the primary worry for the company lies in the broader disruptions this ruling could pose to the used car market.
Coe noted, “Autorama acts as a broker for leasing companies and does earn commissions, presenting a potential risk. However, our larger concern is the effect of this on retailer health, as approximately 40 percent of used cars are financed.”
Despite the used car market’s flourishing status, Auto Trader described the new car retail market as facing challenges, with sales volumes down 10 percent year-on-year, even amid increasing discounts from manufacturers.
Furthermore, the company disclosed that the share of new battery electric vehicles sold via its platform has risen to 18 percent, although it still falls short of the 22 percent target established for 2024 under the government’s zero-emission vehicle policy.