British car market set for tepid recovery amid slow sales
Fewer cars were sold in April than at any time since the Second World War
Britain’s car dealerships reopened this week under strict social distancing rules so they can cope if crowds of buyers descend upon showrooms.
If the first few days of business in St Albans are anything to go by, those concerns are looking misplaced.
A handful of customers were browsing forecourts in the city north of London on Wednesday morning. Evans Halshaw Vauxhall was dealing with a customer visiting the showroom on their first trip out after weeks of self-isolation. At a Honda Motor dealer, a couple were paying for a Jazz hybrid hatchback they’d decided to buy before the lockdown. Elsewhere, salespeople were waiting at their desks for buyers to show up. There was no risk of anyone being turned away to enforce distancing rules.
It’s a far cry from China, where dealerships were swamped with visitors after restrictions on movement were eased. Sales there have already returned to the same level as late last year, helped by government measures to stimulate the market.
British sales are set to grow this month, if only to satisfy the pent-up demand accumulated over two months of national lockdown. Fewer cars were sold in April than at any time since the Second World War and demand last month was still around one 10th of the level a year earlier.
Yet it’ll be tough for the UK car market to match China’s V-shaped recovery. Millions of jobs are at risk in an unprecedented economic slump, and many people have eaten into their savings as incomes fell. So consumers are less likely to load up on credit for a new car. That points to hefty price cuts to shift inventory that could hammer the profits of manufacturers.
“For those in a position to buy, dealership discounts and special offers are likely to be widely available, providing consumers with an incentive to purchase now,” said James Fairclough, chief executive of AA Cars.
Pendragon, one of the country’s biggest car dealers, said it’s had an encouraging start to the week with a mix of customers either looking at new and used vehicles or picking up cars they’d put down deposits for before the lockdown began.
“It is too early to predict how sales will fair coming out of this unprecedented situation, but the demand is out there,” said chief marketing officer Kim Costello in an email. “Many customers we speak with are eager to purchase a vehicle as a safer alternative to public transportation.”
There are questions over whether normal business will resume even when the economy recovers. Car-sharing has begun to challenge private vehicle ownership. And a sharp drop in air and noise pollution during the lockdown has boosted campaigns to discourage car use.
Some dealers are bringing back sales staff only gradually, both to gauge demand and to ensure their social distancing measures are enforceable. Some will never return: Lookers, one of Britain’s biggest car dealer networks, said on Thursday it’s cutting about 1,500 jobs and closing 12 sites, as trading resumes “at lower than normal capacity levels.”
What happens at dealerships in coming weeks will have big implications for manufacturers from Nissan Motor to Tata Motors’ Jaguar Land Rover. They were forced to shutter factories for weeks during the height of the pandemic, and are starting to manufacture small numbers of vehicles that will need a home. British carmakers Aston Martin Lagonda Global Holdings and McLaren Group are now cutting jobs to cope with the fall in demand for their premium cars.
Measures to stop the spread of coronavirus are making selling cars a more cumbersome process. Customers are often asked to make appointments before showing up. Visitors must follow one-way signs around showrooms and perspex screens separate customers from sales staff.
On the upside, buyers get to enjoy a test drive alone. At the Vauxhall dealership in St Albans, owned by Pendragon, the customer is monitored via dashboard cameras and the dealer gets a notification if they go off a pre-approved test route.
Ford Motor Company said it will require pre-authorisation on the credit cards of prospective buyers and ask them to leave the keys to their old car before they head out for a test drive.
With more car sales now happening online, the absence of big crowds at retail outlets doesn’t tell the whole story. And with the government encouraging people to return to work without using mass transit, some commuters may be tempted to buy their first car.
A South African couple living in St Albans plan to take delivery of a car from Evans Halshaw Vauxhall this week as a way to avoid public transport, said the branch’s head of business, who asked not to be identified.
Many of the new car buyers in China were also looking for a way to get around while staying off buses and trains. There are reasons why Britain might not follow the same pattern.
“I can’t see masses of people suddenly jumping from the trains, trams and buses into cars to go to work, especially since issues of parking and traffic jams are being made worse by social distancing measures and the reductions in the width of roads,” said Tim Urquhart, principal automotive analyst at IHS Markit.
Updated: June 5, 2020 04:03 PM