Car dealers could benefit from a £9bn release of savings as consumers splash out some of the huge sums of money they have tucked away during the pandemic.
Experts and car dealers have said they expect a release in pent-up demand as buyers finally return to car showrooms on April 12.
Car dealers are reporting they’ve seen a stark drop off in trade in recent weeks as customers postpone purchases until they can visit a dealership in person.
While that might be frustrating now, a huge wave of spending is predicted to help boost the economy, believes chancellor Rishi Sunak.
Speaking to MPs yesterday on the Treasury Committee, Sunak said he doesn’t believe there’s a need for consumer incentives – such as another Eat Out to Help Out scheme – as consumers are keen to spend.
He said: ‘I think we probably now have higher confidence that there will be consumption-led recovery even without intervention.
‘Consumer confidence is at different levels and there’s actually a lot of pent-up desire.’
Experts predict middle and high income families have saved a combined £180bn since the pandemic and expect to spend at least five per cent, or £9bn, when restrictions ease.
The average household is believed to have around £7,000 stashed way in savings accounts. While millions suffered a fall in income during the pandemic, those that remained in employment saved cash they would have otherwise spent on leisure activities.
A large proportion of this could be spent on new cars as people look to cheer themselves up, especially as there is still uncertainty around foreign holidays.
Auto Trader and eBay Motor Group have both reported data on their sites points to a large number of consumers in their final stages of research.
While What Car? Editorial director Jim Holder told the Car Dealer Podcast that traffic is building around car reviews on its platforms pointing to a ‘strong underlying level of interest’.
He said: ‘In a traditional path the reviews would show an uplift first and then that translates to our New Car Buying product and that of course leads directly to dealers and hopefully that is what’s coming.’
Karen Hilton, chief commercial officer for advertising website HeyCar, told Car Dealer that she believes pent-up demand will be strong in April and May.
She said: That’s really going to be the time for dealers to make hay while the sun shines. I think April, May and June could be really good months.
‘I guess the bit we’re all waiting to see is whether the Gatwick effect happens in July and August, and whether we just all flock for warmer shores having been locked up for 18 months or whether people are slightly more cautious this year and are pursuing a new car purchase because they’re going to go and roam the UK where they feel safer.’
Cap HPI valuations expert Derren Martin told Car Dealer this week that this demand could push used car prices up when showrooms reopen. He advised dealers and consumers to ‘buy now’ before this happened.
‘Pent up demand will be strong, certainly for April 12,’ he said.
‘I think there will be strong demand this time too, but it will be for a shorter period of time and it won’t be for as long as last year. It lasted all summer last year and that won’t happen this time.’
Dealers are already reporting customers putting off purchases with the lack of test drives a major issue.
They say that consumers swapping to a similar model are more inclined to go ahead with a click and collect purchase but when changing powertrain or brand it causes issues.
Robert Forrester, chief executive of Vertu Motors, said a lot of people have saved a lot of cash and are ‘desperate to spend it’ and while the industry saw some of that last year, he thinks ‘it will be here in spades’.
He told Car Dealer: ‘This has gone on a long time this lockdown and anyone looking to change brands or powertrain are really waiting for a test drive.
‘I think that will power pent-up demand.’
Vertu Motors is the sixth most profitable dealer group according to our Car Dealer Top 100, with EBITDA of £40.7m.
Forrester added: ‘I am pretty optimistic about new and used demand post April 12 and we will certainly be gearing up for a riotously royal time.’
The Bank of England’s chief economist Andy Haldane has said he expects the economy to recover ‘at a rate of knots’ from April.
However, some of the bank’s experts have warned there could be some reluctance among households to spend their savings.
Jonathan Haskel, a member of the bank’s monetary policy committee, said a ‘significant chunk’ of the cash tucked away could stay in savings accounts. He pointed to surveys that suggested 70 per cent of households plan to keep the money.
But the bank added that even if five per cent of the £180bn tucked away was spent it would be a ‘considerable boost’ to the economy.
- Join our breaking news WhatsApp group
- Listen to the latest Car Dealer Podcast
- List of the Top 100 profitable car dealers in the UK