News

What is happening in the new car market? Is it bouncing back? We ask industry experts to explain what’s going on

Time 10 months ago

No one would argue that used car sales have boomed in the past few months with reports of dealers fighting over the best stock, but what about the new car market?

With showrooms shut during lockdown, new car sales understandably slumped. In May they were down by 89 per cent with 163,477 fewer registrations than in the same month last year, making it the lowest May since 1952.

But things are improving. June was down ‘just’ 34.9 per cent and July – the first full month with all dealerships across England, Scotland, Wales and Northern Ireland being open – will see a smaller decline or even a rise.

Advert

In a recent Car Dealer Live interview (which you can watch above), the CEO of dealer group Waylands Automotive, John O’Hanlon, told Car Dealer how used and new car sales are starting to level out. Up to now, the balance has firmly been on the side of used cars.

What exactly is happening with the new car market right now, though? What is the demand? Are new car prices resilient and will September be a bumper month? We asked a panel of experts from across the motor trade to give us an idea of what’s happening. Here’s what they had to say…

Pressure to get sales volumes again

Auto Trader director, Ian Plummer

Advert

The new car market has now come off ‘pause’ and is showing signs of returning to a relatively robust level of health. If this momentum continues into July we should see a building level of natural retail orders in the coming weeks, supporting July sales numbers as well as a growing September order bank.

Several brands have also introduced elements of de-risking finance or making terms more flexible for buyers who may otherwise be reluctant to commit to a long-term contract. As long as the exchange rate remains relatively healthy and there are no unexpected shocks to interest rates, this should continue for the rest of the year.

With brands now ramping up production and needing to restore their own cash positions, it’s likely that there’ll be growing pressure to get strong sales volumes again in this key plate change month. But the biggest challenge will likely hit in Q4, which is always a tricky quarter and no doubt even more so this year, as furlough support ends and the economic crisis becomes a clearer reality for some.

One car brand will go big in September

What Car? editorial director, Jim Holder

It’s probably fair to say the new car market is on the edge – boosted by pent-up demand, but with everyone fearful – and in the dark about – when that initial surge will falter, and what prospects will look like once the true impact of job losses starts to land. However, there are opportunities – the ‘haves’ (people with jobs still) are looking to reward themselves after lockdown, and have saved money during it – almost one in five of What Car?’s weekly poll of more than 6,000 visitors say their new car budget has increased as a result of lockdown.

Everyone seems to be watching everyone else at the moment, but there is a strong feeling that manufacturers are set to take matters in to their own hands in September, in the absence of a scrappage incentive, and put some great offers into the market to stimulate interest. We are expecting to see some terrific deals within weeks on selected cars.

I’d expect the overall numbers to be good but not barn-storming – but from an industry perspective I think it will be interesting to watch the market shares. Someone, somewhere is going to go for it, in the way Hyundai famously did in the last recession – and it’ll be fascinating to see if there is an opportunity for a brave brand to make ground.

Expect prices to hold

Scottish Motor Trade Association chief executive, Sandy Burgess

We are seeing decent activity levels across the whole spectrum of the market with many dealers commenting about the lack of available stocks for immediate deliveries, they are instead turning to taking orders for expectant customers. Transaction prices appear to be holding for now, this is no doubt a consequence of the poorer supply situation.

September looks to be very positive and I would expect prices to hold as a number of manufacturers will struggle to meet the demands of the market due to restricted production levels as Covid-19 continues to have an impact.

The UK’s car buyers have for many years now chosen to purchase their new cars using personal contract purchase and more recently personal contract hire, this trend will likely continue although many manufacturers have now got exceptional zero or low rate finance packages in place to support the market. It will be interesting to review this situation at towards the end of the year as many of the finance houses will be very sensitive to their own cash availabilities given the huge take up of the payment holidays.

Less availability of finance funding

Finance and Leasing Association, Andrea Kinnear

Get more from Car Dealer

  • Premium stories
  • Used car data
  • Magazine early access

With 94 per cent of new cars bought using finance, the issue is less about the list price of the car and more about the price of the finance. We see significant pressures building in the medium term – lenders have less income because lending effectively ceased in March; then there’s the exceptional cost of forbearance which firms are required to provide; there’s also the likely rise in terminations and defaults because of the crisis; the increased cost of funding for lenders on the wholesale markets and an expected fall in residual values over the medium terms.

There’s been a significant rise in online transactions, we expect that trend to continue. That said, the combination of factors mentioned above will mean that lenders will have no choice to tighten their lending criteria – which means less availability of funding to consumers.

What is happening in the used car market? We ask 10 experts to make sense of it all 

James Batchelor's avatar

James – or Batch as he’s known – started at Car Dealer in 2010, first as the work experience boy, eventually becoming editor in 2013. He worked for Auto Express as editor-at-large and was the face of Carbuyer’s YouTube reviews. In 2020, he went freelance and now writes for a number of national titles and contributes regularly to Car Dealer.

More stories...

Advert
Server 51