• Pent-up demand after lockdown saw new car sales rise 11% in July, but overall 2020 registrations are still down 

  • The SMMT is forecasting a 30% decline in registrations, or more than £20bn of lost sales, by the end of the year

  • Dealers are seeing an increase in online sales enquiries, as more people get used to shopping over the internet 

  • The market remains fragile in the face of possible future lockdowns and damage to the economy 

The new car market is one of those unofficial, real-world indicators of the health of the economy that many observers view as a handy way of gauging how confident consumers are feeling. After all, if consumers are prepared to invest in something that is likely to be the second-biggest purchase of their lives, they must feel relatively secure in their jobs and see their future prospects as fairly rosy.

The UK new car market has not been in tip-top condition for the last few years, since a peak in 2016, when 2.69m new cars were purchased. But franchised dealers are probably looking at 2019’s 2.31m total enviously now, after the disastrous second quarter of 2020.

Stephen Latham, head of operations at the National Franchised Dealers Association (NFDA), shares the bigger picture of the lockdown: “Initially, most dealerships, in the last few days before the lockdown, tried to get out what orders had been placed and any cars were physically with them. As soon as they returned to work, many of these vehicles were delivered quite quickly, because they had come through the system.

“It looked like there was a quick, positive response from the dealerships, but much of that business had actually been placed before and was in transit at the point of the lockdown.” 

Is there real pent-up demand?

Steve Young, managing director of ICDP, an international research and strategy organisation that specialises in automotive retailing, explains that sales have picked up as dealerships have reopened: “There’s lots of published data that shows registrations have plummeted in the first couple of months, because the dealerships were closed. When they were allowed to move to click and collect, it picked up a bit. And then in the month they’ve been open, retail traffic has been pretty reasonable. 

Demand is now up to a reasonable level – if not quite pre-Covid – which is considered to be acceptable. And, in some cases, dealers are reporting that it’s around pre-lockdown levels

Stephen Latham, head of operations, National Franchised Dealers Association

“But business volumes are down, which is not unexpected. And the numbers still include some false registrations, where manufacturers are pushing out self-registrations [cars registered to the dealer itself] and so on, on the last one or two days of the month. So it’s too early to say where they’re going to end up.”

NFDA members have reported some pent-up demand in early weeks of trading after reopening showrooms. Latham says: “Demand initially looked fantastic in the first week, but that was the frustrated stocks that hadn’t got out, and there were also people in the middle of transactions.

“Then it went quite quiet in the second week. It’s now up to a reasonable level – if not quite pre-Covid – which is considered to be acceptable. And, in some cases, dealers are reporting that it’s around pre-lockdown levels.”

July’s UK new car sales figures support the view that there was indeed some pent-up demand, with 174,887 registrations representing a year-on-year increase of 11.3%. However, overall registrations are still down by 41.9% (or 598,054 vehicles) in 2020, with the Society of Motor Manufacturers & Traders (SMMT) estimating a 30% decline in registrations, or more than £20bn of lost sales by the end of the year.

Mike Hawes, SMMT chief executive, says: “July’s figures are positive, with a boost from demand pent up from earlier in the year and some attractive offers meaning there are some very good deals to be had. We must be cautious, however, as showrooms have only just fully reopened nationwide and there is still much uncertainty about the future.”

Figures for car financing from the Finance & Leasing Association (FLA) in June also show what looks like relatively healthy activity. Consumers borrowed £3.1bn for car finance over the course of the month, which was only 4% down on June 2019: considering that the year-on-year change for the three months to June was down 59%, it’s an encouraging result.

Demand might not be as much of a problem as supply, though, with many manufacturing plants having been shuttered for months. Factories have generally reopened, but with second spikes of infection around Europe, there’s no guarantee that production will continue uninterrupted for the rest of 2020 – and even into 2021.

Accelerating towards e-commerce

One significant factor the lockdown has accelerated is the impetus towards online sales. This can be seen as a simple progression from consumers doing their research online and follows wider societal trends in online shopping.

A post-lockdown survey conducted by the NFDA found that 55.56% of dealers had seen an increase in new car online sales enquiries – although only 25% had seen an actual increase in new car online sales by the end of June.

Lockdown, shielding and self-isolation have increased buyer reliance on the internet, with older ‘silver surfers’ also becoming more adventurous, through necessity, in recent months.

Latham says: “An awful lot of older people have suddenly had to become computer users. People who wouldn’t bank online previously found that online was the only way you could bank. So lots of people have now got into the habit of researching price and acquiring goods online. We’re going to see a much greater take-up of activity online.” 

Keith Kingham, owner of a family-run dealership in Croydon, south London, believes the manufacturers will embrace online sales, largely cutting out the middleman of traditional dealerships. “I wonder whether motor manufacturers will start doing a lot more online. They will still need us types to give them a test drive, but I’m sure they would like that sort of route to market.”

Uncertainty the only certainty

The continuing story of the new car market is one of uncertainty, as it is in almost every aspect of our lives at the moment. 

Young’s longer-term analysis is certainly sobering. “On the retail side, we’ve seen people who were on PCP [personal contract purchase] and PCH [personal contract hire] deals that have come to an end over the lockdown having to make some sort of decision – and the easiest decision is always just to do another lease on a new car. 

“But in another couple of months, when furlough unwinds and the real scale of the economic damage is apparent, perhaps with more lockdowns, my feeling is that the retail demand will drop off.

“In the financial crisis the demand fell for a short while. Then, after a few months people realised it wasn’t actually affecting them, so the dent in consumer confidence was relatively short-lived. 

“This is different. This has been an impact across the whole of the economy so I think the effect will be much longer lasting.”

The SMMT’s Hawes is also concerned about the long-term view. “The market remains fragile in the face of possible future spikes and localised lockdowns as well as, sadly, probable job losses across the economy. The next few weeks will be crucial in showing whether or not we are on the road to recovery.”

As for the franchised dealers, which were already facing an uncertain future before the pandemic, things look even more precarious now, especially for independents, as Latham explains: “I think the industry will shrink, because the bigger boys have probably fared better in this lockdown than the smaller independents. I imagine some of the bigger guys will buy out some of the other businesses.”

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