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To adhere to the latest government imposed COVID-19 lockdown, on November 5 car dealers in England temporarily closed their physical sales operations for the second time in a year. Lockdown-2 follows similarly enhanced social restrictions seen in other parts of the UK. Despite this economic setback, many dealers continue to offer cars for sale through ‘click and collect’. However, even with these strategies in place, Glass’s still expects a significant impact on UK dealer’s profits.
To support businesses throughout this period the Government has extended the Furlough scheme, which will be welcome news. However, this extension does not only cover the four-week lockdown, it will last until the end of March 2021. This has raised anxiety amongst business leaders that extended restrictions may affect businesses via full lockdowns or changes to the local tiered alert system.
The tier system was in place in October, affecting different regions in England in a variety of ways, although not affecting car dealers and other ‘non-essential’ retail outlets. In other parts of the UK, restrictions required dealers to close. This impacted new car sales during this period. According to the Society of Motor Manufacturers and Traders (SMMT), the new car market fell by 1.6% in October, to just under 141,000 registrations, marking a nine-year low. The year to date registration total now sits almost 621,000 below last year, a drop of 31%.
The wholesale auction market continued with strength in the early days of October, but conversion rates began falling as the month went on. It seems that many dealers felt they had the correct level of stock and began ‘cherry-picking’ as a result. As is common when dealers become more selective, vehicle condition becomes more important, with cars with higher auction condition grades falling out of favour, either receiving no bids or disproportionately low offers. Glass’s understands that sold volume increased slightly in October compared to last year but first-time conversion rates fell by five percentage points, to 80%.
Although there is a high level of uncertainty in the current new and used car markets, dealers should take some comfort from how trading bounced back following the end of Lockdown-1. However, with the latest lockdown due to end in December, which is typically a slower retail month due to the pressures of Christmas, Glass’s does not expect retail activity to be as strong. That said, we expect wholesale trading to remain reasonably positive, as dealers build stock for the important post-Christmas and early new year period.