UK car dealers expecting a V-shaped recovery
The UK motor industry has been hit hard by Covid-19, but car dealers are optimistic about the future of the sector. New research from theBritain Under the Bonnet report, from Close Brothers Motor Finance, reveals that short term confidence plummeted during April, but medium to long term optimism has begun to improve.
At the beginning of 2020, 98% of car dealers were confident about business prospects for the year ahead. In fact, 63% were ‘very confident’ – a five percent increase on the previous quarter.
But the Covid-19 lockdown resulted in a 97% fall in new car sales in April, with manufacturers and dealerships alike closing their showrooms. In response to this, in late April, 43% of dealers were unconfident about their business prospects in the next six months, while the uncertain times ahead saw almost half (47%) neither confident nor unconfident. Just a mere one in ten (10%) said they were confident.
Similarly, 41% were unsure about the motor industry and the same number were neither confident nor unconfident in its recovery. Though 18% were confident, suggesting more optimism about the market than their own business prospects. In response to the crisis, more than half of dealers (55%) took out finance measurement to stay afloat, almost half (47%) furloughed staff, and 43% made redundancies.
Looking at the medium and long term, things are looking up. Dealers are expecting the UK to mirror the V-shaped recovery seen in China and Germany. When asked about the business outlook for their own firm over the next 7 to 18 months, 43% are confident and just 20% apprehensive. Looking further ahead past 18 months, 57% are confident and only one in ten (10%) remain concerned.
Looking at the market more broadly, expectations are for a fuller recovery, but one which takes more time. Confidence in the medium term is only 31%, lower than that of business outlook, but looking to the long term 71% of dealers have a positive outlook. With manufacturing now below capacity due to social distancing, and 49% of dealers struggling to source stock, concerns around supply clearly remain.
But as lockdown measures continue to be lifted, the industry is working hard to keep up with the shifted consumer landscape. Dealers are divided over the trends which are likely to shape 2021; 47% think buyers will shift towards new cars, while 53% expect a resurgence in used cars. 71% believe more consumers will pay for their cars using finance, and expectations are for increased demand for petrol (37%) and AFVs (35%).
These align with consumer expectations for the year ahead; at the beginning of the year, half (50%) of young drivers (17-24) told us they would prefer to use finance to buy their next car, and 37% of all drivers wanted to buy a petrol car next.
Seán Kemple, Director of Sales at Close Brothers Motor Finance commented: “The motor industry has not had an easy few years, with external forces like Brexit and economic uncertainty warring with sector-specific challenges around fuel-type and regulation. Dealers were extremely optimistic for 2020 as a year of recovery, so Covid-19 has hit extraordinarily hard. Government support around business rates, the furlough scheme, and frozen fuel duties have been invaluable, but manufacturers, dealers, and finance providers will have to work hard to return to some semblance of normality.
“But as we move out of lockdown and towards recovery, the sector has an opportunity to ‘Build Back Better’. We’ve already seen demand begin to bounce back for new cars, and consumers are crying out for advice and guidance. Trends like the shift to alternative fuel vehicles are likely to accelerate, and a reticence to use public transport could boost both the used and new markets. Dealers need to have their fingers on the pulse and be equipped to guide customers through big decisions over the next couple of years. In the shorter term, Government support will be vital to get the sector back on its feet.”
