1 Jun 20

UK car dealers re-open to an uncertain future

Company car drivers in the UK will be able to test drive new cars again from today for the first time since the Government forced the closure of car dealers as part of the coronavirus lockdown.

June 1 marks the first day of reopening for dealerships, which are in the first wave of ‘non essential’ retailers to resume business.

New conditions

Trading conditions will, however, be substantially different with showrooms operating one-way systems, providing hand sanitiser, and many sales staff wearing masks and sitting behind clear plastic screens.

Perhaps the biggest change, however, will be unaccompanied test drives to maintain social distancing.

Perfect timing

The timing of the reopening provides a welcome boost for manufacturers and dealers due to the UK’s vehicle registration system. This changes every March and September, leading to a spike in sales in these two months. Company car drivers now have three months to test and order a new car for delivery after 1 September, when the leases on their current cars come to an end.

Sales uncertainty

There is still great uncertainty, however, about the scale of demand after new car sales plummeted by 97% in April, compared to the same month in 2019, and new van sales fell by 86%. The SMMT, which represents manufacturers and car dealers has revised down its sales forecasts for 2020 to 1.68million registrations, a fall of -27% compared to 2019. The only optimism is reserved for sales of pure electric cars, which the SMMT expects to double in 2020, compared to last year, although forecast volumes remain small at 77,300 registrations.

Some car dealers have operated a ‘click and collect’ service during the lockdown, and internet sources indicate growing online interest in both new and used cars towards the end of May, suggesting an element of pent up demand for replacing cars. Dealerweb, for example, said digital enquiries to car dealers in May were only 16.5% behind 2019 levels for the same month in 2019. The same figures for April were 61.5% down.

Sue Robinson, Director of the National Franchised Dealers Association, said: “As lockdown measures start to ease, many of us will need cars to get back to work.”

Retail special offers

Commuting by car will now find itself in competition with walking and cycling as workers avoid the shared space of public transport to get to work. Manufacturers are certainly lining up a series of special offers to lure private new car buyers: Mazda, for example, is offering 0% finance on any new car purchased in June, with no minimum deposit. Kia has introduced a similar offer for its hybrid Sportage and Niro models. And Volkswagen is offering to pay the first three months of payments on new car purchases.

Remarketing and residual values

However, with coronavirus weakening business confidence and many employees either furloughed (not working and salaries paid by the Government) or losing their jobs, fleet interest appears more likely to focus on selling company cars and vans that are no longer required, than sourcing new vehicles. Here, at least, there may be some good news.

The decline in new car sales is likely to lead to a shortage of secondhand cars, with fewer trade ins, and this could boost residual values, according to Anthony Machin, head of content at Glass’s, part of the Autovista Group.

“If the UK enters a prolonged recession, retail demand will increase as consumers seek cheaper cars to reduce spending,” he said.  

But at cap hpi, Derrren Martin, head of valuations UK, warned that used vehicle prices are set for a volatile period, and he urged vendors to hold their nerve as they remarket used cars.

“If rental, fleet, leasing and finance houses choose to liquidate stock, there may well be an over-supply situation in a few weeks, especially as many franchised dealers will not be in the market to buy in volume for a number of weeks, as they clear the decks of March part-exchanges and come under pressure from manufacturers to take late-plate or unregistered cars,” said Mr Derren Martin.

Image: Nissan

Authored by: Jonathan Manning