Auto Trader hitting maturity

Analysts expect a time lag between falling new car sales and the impact on the used-car market. But this appears to be manifesting itself more quickly than anticipated. Recent results from Vertu Motors (VTU) report shrinking used-car margins, which might suggest that an oversupply of new cars – or consumers delaying the decision to trade in vehicles – is putting downward pressure on residual values. This has been aided by macroeconomic factors in the UK, such as the weak pound and poor consumer confidence, and abetted by political uncertainty. At the time of Auto Trader’s first-half results in early November, we wouldn’t be surprised to see the company reporting similar pressures: its ads list stock from over 80 per cent of UK motor traders so, given its large share of the UK market, it has a long way to fall if things take a turn for the worse.

There are also mounting concerns on both sides of the Atlantic about the state of motor financing. In the US, parallels have been drawn between today's used-car market and the US housing market in the early 2000s where overstretched subprime borrowers contributed to the crash in house prices that produced 2008's melt-down. We’re worried about the precarious nature of personal contact plan (PCP) finance in the context of wider economic unravelling as levels of consumer debt in the UK remain at historically high levels and wages fail to keep pace with rising inflation. A rise in interest rates would further limit the ability of consumers to handle motor loans. We’re also doubtful about how much recently-announced scrappage schemes are going to act as a stimulus for the industry. Compared with the government-backed scheme in 2008, recent programmes are driven by individual manufacturers, such as Toyota's, and largely relate to diesel vehicles as the industry moves towards cleaner, electric technology.

But bulls on the stock would argue that Auto Trader is largely unrivalled. In our opinion, this is less a fact and more of an opinion. Self-proclaimed “car supermarket” Motorpoint (MOTR), whose shares joined the London market mid-way through 2016, offers the chance to browse 6,844 used cars on its website, while individual motor groups, such as Lookers (LOOK) and Marshall Motor Holdings (MMH), offer dedicated websites showcasing both used and new vehicles. The question is, how much longer will they need to advertise their cars on Auto Trader?