This webinar focussed on the impact COVID-19 has had on the UK market and included a whistlestop tour around Europe to see how our neighbours have fared through the pandemic.
Question & answer session
We received so many questions that we couldn’t answer all of them during the session. Here we provide answers to those questions we didn’t get around to on the webinar.
In projecting such a strong recovery are you at risk of being overoptimistic if there’s a deeper recession generally with high levels of unemployment e.g. in the leisure, entertainment and restaurant sectors?
Just to clarify, what was the main reason why UK RV values are expected to be more resilient than Europe? Was this mainly driven by the supply side?
With our current data, and assessing data from significant recessional periods in the past we are confident that the UK market has the potential to come back strongly and relatively quickly. As an island that drives on the left, there will be specific supply constraints for the UK which will continue to affect the availability of new cars.
The supply of new cars could be further curtailed as we negotiate the UK trade deals with Europe. These trade deals are likely to negatively affect the Euro / Pound Exchange rate further increasing the price of new cars, whilst at the same time positively affecting the demand for used cars.
As unemployment continues to rise the makeup of the demand in the automotive market is likely to change with it. Firstly, additional unemployment is likely to force a further contraction in the new car market. Conversely, this is likely to increase demand in the used car market again strengthening the recovery of used car values, this was last witnessed during the 2008 financial crisis.
How excited are you about the rumours of a government grant of £6,000 linked to scrappage?
The possibility of a new scrappage scheme would be a welcome boost to the industry. However, it will need to be targeted and realistic. Taking possible new car supply constraints into account, especially the availability of battery electric vehicles which had supply issues before the pandemic, government grants may just replace offers from the manufacturers themselves boosting their profits.
Why do you think the new car sales forecast will decline in Q4 when the SMMT are predicting it will rise during the same period?
Taking Glass’s forecast methodology into account, the forecast presented in the webinar is our latest forecast taking account of the weakening economy and the latest news around redundancies. Many of these redundancies are likely to be long term across multiple industries including automotive. Although we predict Septemeber close to 2019, October, November and December will be lower as consumer confidence and spending power continues to fall.
What impact do you think a government stimulus package will have and which segments will benefit the most?
We currently believe the stimulus package will benefit the retail and hospitality industries most. Although there have been redundancies announced in this sector, specifically by the owner of Frankie & Benny’s however, these redundancies were announced in February with the closure of several Frankie & Benny’s and Chiquito restaurant sites.
How do you think the lack of wholesale stock will affect prices? BCA currently have 9300 vehicles available for sale where they normally have around 20,000 this time of year.
Current undersupply of vehicles in the wholesale market is allowing remarketing companies to reaccess their UK selling strategies. We have already seen auction sales go 100% online with many of the auction companies suggesting that physical sales will not recommence quickly.
UK auction buyers are adopting to the online world with sales and first-time conversion rising. As logistics become accessible, more used vehicles will become available in the auction channels increasing supply at a time when buyers have growing confidence in buying at online sales.
Are older cars selling better because the public don’t want to use public transport?
There are several reasons why older lower price cars are in demand currently. In most cases, customers are seeking the best value for money available. Glass’s May analysis of the UK’s fastest-selling vehicles confirms this. The reasons are varied, however, from conversations with our dealer contacts, the main reason stated by customers currently appears to be that they are looking for alternative ways of getting to work to avoid public transport.
Is there expected to be a significant increase in cars entering the UK used car market, following the end of payment holidays and PCP maturity extensions later this year? Is this expected to have a tangible effect on RV values?
Currently, we do not predict that there will be a significant amount of additional cars entering the UK used car market and the expectation, therefore, is that this will not have a tangible effect of residual values.
With lower used car sales volumes what do you anticipate in terms of values?
Overall we anticipate that there will be a fall in values in 2020 and 2021 with recovery in 2022. The majority of these falls will be driven by the economic effects of Covid-19 coupled to Brexit driving lower demand in the UK market.
On a related matter, what is happening to MY21 rollover from MY20 production?
Car manufacturers around the UK and Europe are opening factories for new car production as their local governments permit them to do so. They continue to move forward with their new car launches, in a virtual manner, with the majority of manufacturers suggesting that they will continue their model year changes and updates as normal.
You say that you expect the used market to be down 31% this year. Do you expect this to be primarily a supply or demand problem?
There are two main reasons for this. Firstly, with the closure of the car dealers, the used car market has lost time and the trade-in vehicles from the new car transactions. Catching back this volume, will be impossible this year. Additionally, UK economic stability rocked by Covid-19 with the effect of Brexit, will play a role in slowing the sales of new and used cars moving forward.