Car buyers return
Is the race on to beat price rises?
As we stand on the cusp of a deep global recession sparked by a pandemic, it’s hard to imagine that you need to act fast if you want to buy a new car in the near future, both to get to the front of what will be a lengthy queue and to beat almost inevitable price rises. That, however, is the reality of the situation.
While the government has yet to lift nationwide lockdown restrictions, it recently sparked the car market back into life by confirming that dealerships can sell new cars online and deliver them, so long as they obey all social-distancing rules.
Strictly speaking, this wasn’t news: manufacturers had never been required to stop online sales, while some retailers had kept a handful of staff off furlough to do the same. And the lockdown rules have allowed travel to work if this is essential to your role.
Even so, the majority of the car industry – including pretty much all franchised dealers – reasoned that the need to stop the spread of Covid-19 eclipsed their desire to sell cars.
But the significance of the government’s statement on the rules of engagement shouldn’t be underestimated. It sparked extra traffic to the websites of Autocar and sister title What Car?, and within hours dealers were, according to our sources, scrabbling to take employees off furlough.
Those dealers are anxious to make arrangements to both deliver cars that had been bought but not collected prior to the lockdown and rebuild the pipelines of orders that are needed to keep them in business for the long term.
At the same time, the European car industry is starting to resume production; for instance, both Aston Martin and Jaguar Land Rover have announced plans to reopen some of their UK factories in the coming days and weeks.
Once new cars start rolling off the line again, the wider industry must get back to work, marketing, selling and more, to ensure these quickly find new homes rather than depreciate in fields and car parks.
There should be plenty of buyers in the UK, too, at least in the short to medium term. That’s down to the dominance of PCP finance deals, with their regular renewal cycles – many of which have been extended to cover the industry shutdown.
Add in a backlog of pent-up demand from other would-be customers and there should be strong initial demand; a recent survey found that one in five visitors to whatcar.com were planning to buy a car within a month of the lockdown ending.
This presents a challenge to manufacturers, which are having to adjust to slower production rates due to social distancing and other new health and safety rules.
The reduced output means, according to our sources, that a typical 12-week waiting time for a factory-order car pre-crisis will now be around 26 weeks.
If that’s true, many buyers may see what new or nearly new models are in stock for immediate collection instead. And while many manufacturers profit handsomely from their nearly new schemes, they ultimately thrive by selling shiny new metal fresh from their production lines.
Supply is therefore expected to fall short of demand initially, and the current desperation of manufacturers and retailers to shift cars so as to gain income isn’t expected to last long.
As a result, it’s widely expected that previously negotiable discounts will rapidly be reduced, and that the hard-hit manufacturers and sellers will look to recover some of their lost trading year by shoring up profit margins – at least until the balance shifts.
New-car-market pricing analyst Pat Hoy is already seeing discounts contracting.
He said: “While the market is frozen, most dealers that
are open have been nurturing leads, making it harder to get a clear indication of what their plans are for when business opens up again.
“But the expectation is that as soon as demand outstrips supply, they will look to reduce incentives and discounts and focus on profitability.
“Of course, there will be variables within that. Some manufacturers will sacrifice profit for market share, and a scrappage scheme focused on taking older cars off the road and getting people into hybrid and electric vehicles [a move proposed by some to spark the industry] could skew the picture, but the likelihood is that, for most buyers, discounts will narrow as soon as the market opens up.”
So, which manufacturers might thrive as the crisis eases? The beneficiaries could be those that can deliver cars made in countries further along in dealing with the effects of the coronavirus. That suggests China – and notably MG, which has been making strides in the UK recently with its ZS EV and plans to launch an electric estate when the lockdown ends – and South Korea, from where Hyundai, Kia and Ssangyong import many of their vehicles.
For now, though, the message is clear: the shortest lead times and best discounts won’t be available for long.