Why did Tesco’s use car arm fail?

It turns out selling used cars is very different to selling eggs

In a week where supermarket giant Tesco is battling to keep some of its biggest shareholders amid concerns about the group’s future strategy, it was an interesting time to pull the plug on its fledgling car retailing venture, almost exactly a year to the day after it launched.

Using the infrastructure of a used car operation called Carsite, Tesco Cars saw itself reforming the used car landscape, offering sellers of cars up to three years old – mainly fleet operators, car leasing companies and rental firms – a sales channel that it claimed would offer faster sales at higher prices than other routes such as auctions.

The reality has proved very different, and it turns out selling used cars is very different to selling eggs. When Tesco came in, the used car market was in a fairly depressed state, with plenty of stock around. But in the last six months in particular, volume has dried up considerably as the depression in new car sales of 2008 and 2009 now hits supply of three-year-old vehicles. Good used cars can currently command top dollar from buyers, as there simply aren’t enough around to satisfy demand.

Anecdotally, my contacts tell me Tesco came in and tried to act as it does with farmers and its other supermarket suppliers, using its size to try and dictate terms by wanting customers to keep cars on their books and wait for a sale, rather than taking them to the nearest auction where the cash would come through much faster. Ultimately, Tesco struggled to get hold of enough decent quality used cars as the company learned, slightly too late, that the used car market didn’t need Tesco as much as it thought it would.

Don’t mistake this as a weakness in the car market though. Private sales are struggling because of general fears about the economy leading to people not making luxury purchases like a new car when their current one serves a purpose for now, but Tesco isn’t pulling out of selling cars because it’s a struggling sector of the UK economy. The general view of people I’ve spoken to in what is a mature and established car industry is that Tesco came in and though it could easily become a big player overnight, and that people would buy cars from the brand the recognise as the place they get their groceries. Approached in a softer way and with a perceived greater understanding of how and why the new and used markets work, Tesco Cars may have survived beyond its first birthday, but the famous supermarket brand has found used cars too tough a nut to crack.