Investigation: How long can strong new and used car sales last as car dealers enjoy bounce back June?

Time 1 year ago

Car dealers – now back at work for three weeks – are reporting busy forecourts, strong new and used car sales and used car prices rising, but the question on everybody’s lips is: How long will all this last?

It was predicted car dealers returning to work on June 1 in England would result in a release of pent-up demand for new and used car sales – and the dealers we’ve spoken to have seen exactly that.

Not only are there sales that were put on hold during the lockdown now being completed in June, many new buyers are entering the market looking for used car alternatives to public transport.

Some dealer groups have told us that they could end June UP on last year, such is the impact that release in pent-up demand is having.

New car registrations for the month, which are seeing many deferred from April and May now being completed, could somewhat artificially skew the new market upwards.

Stuart Foulds, chairman and CEO of Ford Retail and TrustFord, sold more than 105,000 vehicles across the UK last year and turned over £1.8bn. He’s been in the car business for 40 years and thinks there’s ‘some bull***t’ over sales numbers currently being bandied around.

He said: ‘During lockdown we received a high number of online enquiries which once lockdown eased converted into sales. I think there’s been a lot of hype by the big groups and to an extent some bull***t over numbers. 

‘Yes, it has been busy, but initially this was delivering vehicles locked down and fulfilling orders that were caught as well. There are also a lot of customers whose PCP expired and so there has been a lot of activity in that area as customers renew their car. 

‘June will look an ok month – but falsely stated as we cram three months’ worth of sales into one.’

Nathan Tomlinson, dealer principal of Mitsubishi dealer Devonshire Motors, said he also believes June is going to give a distorted picture of the market, but less so for his business as he managed to trade a little during lockdown.

He said: ‘Being small and nimble enabled us to remain open throughout April and May, initially nurturing enquiries and then being able to fulfil order take through click and collect and/or home delivery. 

‘I think that gives us a slightly less distorted perspective on June. Certainly there is an effect from the showroom reopening but we are carrying less through than would have been the case if we had been completely closed.

‘Our new car sales are already at an equal with June 2019, but it has to be remembered that 2019 was far from exceptional with Brexit and other factors affecting trading. That said, I would take last year’s challenges over the ones we’ve faced so far this year!’

Sean Kelly, managing director of Vines BMW, said he is actually predicting to bounce back into profit this month.

He told Car Dealer: ‘Business has been brisk since the wider reopening of our business on June 1. 

‘While we initially saw a flurry of used car sales way in excess of new car volumes, as we have progressed through the month the demand for new cars has solidified and we expect to be back to a more usual used to new ratio of 3:1 for this month.  

‘Our forecast is a bounce back to decent profit in the month – following two months of losses – also bearing in mind that a significant number of our employees remain on furlough.’

The classified advertising websites and new car portals are reporting demand is high too.

Auto Trader, Carwow and What Car? all told Car Dealer Magazine that they’d seen strong demand from consumers.

Auto Trader in particular has been awash with customers hunting for a new car.

‘Since showrooms in England and Northern Ireland have been able to reopen, we’ve seen audience levels accelerate dramatically, and we’re currently recording an average of 2.1m visits every day,’ said the site’s commercial director Ian Plummer.

increase in used car leads on 2019 on Auto Trader

Used car ad views are up 24 per cent on the same period last year while used car leads have increased a staggering 95 per cent on Auto Trader. New car ad leads are also up 71 per cent.

Carwow has seen similar levels of demand with test drive enquiries in the first week back for dealers up 92 per cent.

A spokesperson for the site said: ‘Since June 1 we have seen a big increase in demand, on par, and in places, exceeding what we saw in the same period in 2019.’

Jim Holder, who helps lead the What Car? New Car Buying platform for Haymarket Automotive, says they’ve also seen healthy consumer demand in June.

He said: ‘If, as we like to believe, What Car? is a barometer of the new car market, then June is looking very healthy. 

‘All our metrics are up year-on-year, and our New Car Buying lead generation product is enjoying a record, and growing, number of enquiries every day.’

So, it looks like June is clearly pretty buoyant for the motor trade, but with the furlough scheme support gradually winding down from the end of July and job losses likely to rise – just how big will this bounce be?

Mike Jones, chairman of accountants ASE Global, said demand is likely to follow the ‘wider sentiment’.

‘If we see the continued easing of lockdown conditions, with no major second wave or mass unemployment, then we should see a continuation of the demand,’ he said.

‘That is certainly what many of the brands are forecasting given the targets they are setting retailers.

‘At the moment the thing holding us back is the full reopening of the used car ecosystem. With auctions and logistics companies not being fully open, many retailers are having their used car sales restricted by a lack of supply.’

Derren Martin, head of valuations for Cap HPI doesn’t think the bounce will be that high.

He said: ‘This demand will not last for more than a few weeks in our opinion – but July and August could be reasonably strong, but not to the same degree as June. 

‘There are issues sourcing stock at the moment. The logistics bottleneck does not help. There are still people on furlough from transport companies, so they are not yet at full capacity. 

‘There are also issues with social distancing in this area and that slows the whole process down.’

Chorley Group sales and marketing director Adam Turner is predicting the demand will last for the rest of the month, but then sees problems ahead.

‘We feel the increased demand will continue to last throughout the remainder of June, but we do envisage a slight decline in July with a more normalised market – in our opinion this could be largely due to the potential lack of used car stock with the lack of retail part exchanges coming from the new car sales,’ he told Car Dealer Magazine.

What Car? editorial director Holder also predicts it could be a tough summer for dealers before it gets better again.

He told us: ‘Predicting when a bump will hit feels like a fool’s game in this climate, but with the bulk of job losses likely to land between early July and late August, it seems likely that the pinch will hit hardest from September and be compounded by the misalignment of new and used stock levels that looks certain to play out following the closure of factories and freezing of buying and selling.’

Other car dealers agree. 

Vines BMW boss Kelly added: ‘My expectation is that the release of the lockdown pent up demand will continue for the next few weeks and then settle down into a more stabilised position.’

Kelly thinks there will be conflicting factors in the market going forward with demand for used cars from those avoiding public transport and people using cancelled holiday funds to treat themselves, both counteracted by increasing job losses.

‘There is clearly a contraction in the UK economy, with widespread job losses already announced and the cessation of the furlough programme could trigger further unemployment over the next few months,’ said Kelly.

‘I remain cautiously optimistic that the market will be sufficient for the majority of dealers to produce an adequate return over the second half of the year and this, in conjunction with an expected resolution to Brexit, will see us set up for a much more positive 2021 – second waves aside.’

Tomlinson is hopeful some sort of government stimulus for the car market will also be announced and help boost demand as the pent-up spike subsides.

‘I think there’s every chance that we’ll see some sort of incentive to ensure that spending in our sector is encouraged,’ said the Mitsubishi dealer. 

‘Beyond this year, I worry for the current business model and for the future of some manufacturers, the supply chain model, and the industry as a whole.

‘Covid-19 has been a challenge, but it isn’t the only one we’ve been facing and in effect it has probably done as much to accelerate what’s coming in the future as it has to disrupt 2020.’

Others think things will slowly get back to normal – whatever that is. Valuations expert Rupert Pontin, from Cazana, believes demand will stabilise in the coming months.

He told Car Dealer: ‘At the moment we believe that there is no reason for demand to drop significantly and the expectation is that this will continue as general life moves back to normality.

‘The caveat is if we have a second Covid-19 spike. The impact of any renewed lockdown measures is impossible to measure at this stage, but it is likely that this will impact consumer demand again which is why the online purchase option is so important for retailers.’

The advertising websites are predicting similar levelling out of demand in the near future.

Carwow says that it thinks new car sales will drop slightly in the next couple of weeks.

‘Once that peak pent-up demand has passed then the market will hold fairly steady as fears over the virus and economic impact start to ease,’ said a spokesperson for the new car buying website.

While Auto Trader director Plummer added: ‘As the taps of some supply sources are progressively turned back on, dealers should still be met by strong levels of demand, ensuring the market has a good chance of maintaining a healthy balance.’

But those aren’t shared by everyone. There’s a final warning from TrustFord boss Foulds to those in the industry predicting a sustained revival – and with 40 years in the trade, we’re not going to argue.

‘Clearly we hope demand will continue, but there is so much uncertainty in the UK with a mass of redundancies on the horizon, I fear we’ve seen a bubble which will not continue,’ he said.

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Whatever happens, making hay while the sun shines sounds very sensible this summer. With contributing factors likely to combine to make trading tough over the normally-barren summer months, the motor trade isn’t out of the woods just yet.

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James Baggott's avatar

James is the founder and editor-in-chief of Car Dealer Magazine, and CEO of parent company Baize Group. James has been a motoring journalist for more than 20 years writing about cars and the car industry.

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