The elephant in the room

As some level of activity returns to the car market in Europe, with some manufacturers beginning production, dealerships reopening in some markets and online sales with home deliveries being introduced in others, the biggest question over the shape of a post-Covid recovery is around consumer confidence.  The unanswerable question – the elephant in the room – is what mood will the public be in when lockdown ends and they have the chance to indulge in some retail therapy?

We can be fairly certain that aftersales will recover reasonably quickly, but possibly influenced if mileage driven reduces, therefore driving lower mileage-related service and crash repair.  However, if concerns about maintaining social distance move people from public transport to private cars, mileage driven could increase.  Chinese data shows that in the first week of April, 45 of the fifty largest cities had congestion levels of 90% or more of prior year levels, but subway usage had fallen by half.  Is that reason to be hopeful?  However, what has been lost will for the most part remain lost unless the work is covered by service plans.

For fleet car sales, the OEM’s #1 port of call for volume - daily rental - is going to be dead, and they will have to deal with the question of how they handle scheduled defleet for cars that have stood idle for three months.  Policy for large corporate fleets across the board will be influenced by post-Corona budget cuts, so expect holding periods to be extended as happened in the financial crisis.  Some consumers will be in similar situations with cars on a personal lease of some form that expired during the lockdown.  Some may face financial hardship, and ask for an extension rather than replace, or return their cars without a new replacement.  All of these will influence the flow of young used cars into the market, with as yet unpredictable effects on residual value.  Following the financial crisis, demand exceeded supply and residual values went up in some markets, but where will used car demand be in the summer and beyond?

To address this question, and that of the retail customer for a new car where they have free choice, or whose leases will end in the months ahead, the critical question will be how will they feel about their mobility needs and their financial security?  It is a topic that we will doubtless return to as Europe returns to whatever the new normal is going to be, but there are some surveys and data analysis that encourage a positive view, whilst others are more cautionary.

In the UK, surveys by Autotrader and WhatCar? Both show high level so usage of their websites, with most visitors stating that they intended to purchase a car this year, although there was some tendency for this to be biased towards the period from July onwards.  This may relate to uncertainty about when we return to ‘normal’, or a slight ‘wait and see’ attitude to ensure that there are no financial consequences that would influence that decision.  Carwow Germany reported last week that enquiry levels through their site were rising strongly, doubling in around ten days, and are now at around 70% of the level seen at the beginning of March, a week before the lockdown was announced there.  A McKinsey consumer survey however reports declining levels of optimism about a post-Covid recovery in EU5 markets.  Germany has remained fairly stable with around a quarter of those polled feeling “very optimistic” or “optimistic” over the last five weeks.  By contrast, France has declined quite significantly from 18% to 10%, Italy slightly from 13% to 10%, Spain from 19% to 12%, and UK from 23% to 17%.

Overall, it feels like the focus in the first few weeks back is to capitalise on the delayed deliveries, leads captured during the lockdown and a well-managed and sensitive approach to past customers whose cars are coming off finance or are in positive equity.  We need to contribute to building a positive mood, and have meaningful incentives to encourage those who may be hesitant to come back into the market, such as our Covid/CO2 scrappage proposal.  With that combination, we have the best chance – though not a guarantee – of recovering at least some of the lost new car volume, and feeding into the used and future aftersales market.  Perhaps then the elephant in the room will turn out to be the pygmy variety rather than a full on African Bush variety…