Market Insight: Counting on buyer demand

AS MELBURNIANS in lockdown know only too well, the insidious nature of COVID-19 can quickly undermine positions of relative strength in fighting the pandemic and, for the automotive industry, thwart early signs of recovery.

This road is longer and rockier than many had anticipated, not only in Australia but virtually every major market with the exception of China, and there is simply too much uncertainty in both health and economic terms to pinpoint the destination, let alone an estimated time of arrival.

But what gives many in the industry some cause for optimism is the fact that buyer demand remains strong under even the most difficult of circumstances, as seen in various markets but perhaps most strikingly in the United Kingdom last month.

There is plenty of bad press coming out of Britain, including financial results that show it has suffered the deepest recession among the world’s top economies this year with GDP slumping by a record 20 per cent in the April-to-June quarter as the nation was in lockdown and ‘non-essential’ retail outlets remained closed until at least June 15.

That meant July would be a telling month for many sectors, including automotive which found that as restrictions eased and dealerships had their first full month of trading since February, consumers were ready to buy.

According to the UK Society of Motor Manufacturers and Traders (SMMT), pent-up demand and solid offers in the marketplace from car companies in desperate need of showroom traffic were behind a rallying 11.3 per cent increase in new-car registrations last month, to 174,887 units – the best July result since 2016.

The light-commercial vehicle segment also saw its first month of year-on-year growth since January, posting a 7.1 per cent increase with 27,701 new vans and utes joining Britain’s roads.

Tempering the significant improvements, particularly in the passenger car sector (which includes SUVs), are caveats such as declining business and consumer confidence undermining the market in July last year.

And while pent-up demand is a positive indicator, a sustained revival across several months will be the true test of the industry’s recovery – in the UK and everywhere else, including Australia.

“July’s figures are positive, with a boost from demand pent up from earlier in the year and some attractive offers meaning there are some very good deals to be had,” said SMMT chief executive Mike Hawes.

“We must be cautious, however, as showrooms have only just fully reopened nationwide and there is still much uncertainty about the future.

“By the end of September we should have a clearer picture of whether or not this is a long-term trend. Although this month’s figures provide hope, the market remains fragile in the face of possible future spikes and localised lockdowns as well as, sadly, probable job losses across the economy.

“The next few weeks will be crucial in showing whether or not we are on the road to recovery.”

Overall new-car registrations are down 41.9 per cent in the UK for the year date, and are not expected to claw back more than about 10 per cent over the next five months, with the SMMT predicting a 30 per cent deficit by the end of 2020 – a shortfall that will cost Britain an estimated £20 billion ($A36.4b) in lost sales.

Last month’s figures show that demand from private consumers was strongest among the buyer types, climbing 20.4 per cent as a direct result of Brits being finally able to renew their cars after lockdown had forced them to delay.

The SMMT also highlighted the impact of the incentives on offer in the marketplace, with eight of the 10 major manufacturers providing “attractive finance offers and flexible payment terms in a bid to head off consumer uncertainty – vital as the Coronavirus Job Retention Scheme phases out, potentially sparking redundancies across the economy and impacting confidence to invest in big-ticket purchases”.

Fleet purchases increased by a more modest 5.2 per cent, and business passenger car sales were actually down 11.8 per cent, leading the SMMT to emphasise that “more than 13,000 jobs have now been lost by UK automotive across retail and manufacturing as a result of the pandemic, with more likely to follow given the scale of the challenges facing the sector, including shifts in technology, Brexit uncertainty and a depressed market”.

Mr Hawes said the growth in LCV sales last month was similarly driven by pent-up demand and the re-emergence of sectors such as building and construction.

“With lockdown restrictions rolling back and businesses restarting operations, the van market is beginning to look more positive,” he said.

“However, these green shoots of recovery could prove fragile given the uncertain economic situation. With new technology coming to the market and the need for operators to renew their fleets, maintaining overall business confidence will be crucial.”

The improvement in the LCV sector also comes against a backdrop of prolonged reduced demand.

Overall LCV registrations are down 39.0 per cent for the year to date, and the SMMT’s latest forecast puts the total market at around 270,000 units come December 31, which would mark a 26.3 per cent decline.

‘Supermini’ and lower medium-sized (‘small family’) passenger cars were the most popular segments in the UK market last month, accounting for 59.1 per cent of the market. The Vauxhall Corsa was out in front with 4528 sales, ahead of the Ford Fiesta (4386), Toyota Yaris (4200) and Ford Focus (3551).

Ford was the passenger car market leader, posting 18,814 sales (+10.4%), followed by Volkswagen on 15,617 (+2.9%), Audi on 12,017 (+16.4%), BMW on 11,446 (+24.4%) and Mercedes-Benz on 10,254 units (-15.0%).

Across the LCV sector, 2.5-3.5t vans accounted for 63.4 per cent of sales, compared to 2.0-2.5t vans on 16.5 per cent and pick-ups on 14.1 per cent. The Ford Transit Custom was the top seller with 3405 units, with the Mercedes-Benz Sprinter next best (2581) and Ford’s Transit in third (1785).

Ford was also the clear LCV market leader last month on 7949 units, despite sales falling 12.0 per cent compared to July last year, followed by Mercedes (3287, +7.9%), VW (3433, +28.1%), Vauxhall (2819, +61.4%) and Peugeot (2402, +10.1%).