Auto Trader unable to cash in on record demand for used cars

Used cars are selling faster than at any point in Auto Trader’s history but the online vehicle marketplace has been unable to cash in on the record demand.
Shares in Auto Trader fell 60½p, or 7.2 per cent, to close at 783p despite the retailer reporting revenue up by 8 per cent year-on-year to £302.5 million in the six months to the end of September.
“The only downside in the results is that cars are selling really, really fast at the moment,” Nathan Coe, the company’s chief executive said. “So even though we’ve got dealers selling 5 per cent more cars through Auto Trader none of that has really flowed through to our revenue and that’s just because of the way our business model works.”
The company’s advertising model sees retailers pay to lease an advertising slot on the site, paying a flat rate regardless of whether they are successful in selling their cars.
The rapid pace of sale means that cars are being advertised on the platform for shorter periods of time, so the record number of cars sold has not resulted in an increase in advertising revenue.
The recent decision by the Court of Appeal that motor finance companies must disclose any commissions made on sales also threatens to dampen Auto Trader’s business, at least in the short term.
There are concerns that a small part of Auto Trader’s business, its Autorama brokerage, may have some exposure to the ruling with analysts at Panmure Liberum estimating the impact to be around £20 million. However, the company’s principal concern centres on the wider disruption the ruling could cause the used car market.
“Autorama is a broker for leasing companies and they do receive commissions, so potentially there would be an exposure there,” Coe said.
“Liability is the least of the things that we would be worried about. About 40 per cent of used cars are sold on finance and the impact of that on the health of our retailers would be a far bigger concern to us than the exposure that there might be on some relatively small part of our business.”
While the market for used cars has boomed, the company said that the new car retail market remains “challenging”, with volumes down by 10 per cent year-on-year despite an increase in discounts being offered by manufacturers.
The company added that the proportion of new battery electric vehicles sold on the platform has increased to 18 per cent but still remains below the level of 22 per cent for 2024 required under the government’s zero-emission vehicle mandate.