Update on the automotive sector

The Deloitte Consumer Tracker Q1 2020

The Deloitte consumer confidence index hit a record low in the first quarter of 2020, as the impact of COVID-19 unfolded in the UK. The index fell nine percentage points compared to the previous three months, to -18 per cent – the lowest level since the Deloitte Consumer Tracker began in Q3 2011.

Q1 2020 culminated in the UK new car market falling by -44.4 per cent in March as COVID-19 saw manufacturers halt production and dealerships close their showrooms. After a challenging 2019, where new car sales fell for a third consecutive year, there was some optimism that Q1 2020 would provide a bumper start to the year. Growing consumer confidence, business optimism, greater political stability and more certainty around Brexit were seemingly aligned to provide a boost to sales in 2020. However, the year started badly, with sales down -7.3 per cent in January and -2.9 per cent in February, according to figures from the Society of Motor Manufacturers and Traders (SMMT). This poor performance has been compounded by the impact of COVID-19 which has seen March experience a steeper fall than during the last financial crisis with some 203,370 fewer cars sold in the month. Ultimately, sales fell by 31 per cent year on year over the first three months of 2020.

March is traditionally the most important month of the year for new car sales, as it reflects the first new number plate change of the year. As a result, it is disappointing that March 2020 recorded the lowest sales since 1999, when the industry changed to bi-annual plates. However, the COVID-19 restrictions put in place in the second half of the month, clearly had a negative impact on sales. Indeed, the decline in sales might have been even worse had the substantial advanced orders placed for the new 2020 plate not been delivered earlier in the month.

Interest in electric vehicles continues to grow

Reflecting on the sales that did occur in Q1 2020, it is clear that the market is on the cusp of a major change. In the first three months of the year, battery electric vehicles achieved a 3.8 per cent market share, up from 0.9 per cent during the same period last year. In March alone the figure jumped to almost five per cent and is expected to keep growing as more models become available and businesses and their employees begin to take advantage of the generous tax benefits associated with purchasing low emission vehicles.

The outlook for the industry

The short-term prospects for new car sales are poor. Not only are dealerships likely to stay closed given the continuing lockdown, but planned purchases over the next three months are also at their lowest level in the history of the Tracker. According to our research, only 2.5 per cent of consumers plan to buy a car in the next three months, down from five per cent in Q4 2019.

While it is unclear when the industry will return to ‘business as usual’, when we do emerge from the COVID-19 crisis, there is likely to be latent demand for new cars and everyone from manufacturers to dealers will be asking themselves how they can respond accordingly. A number of dealers have already moved their consumer interactions online, and the ability to support this will become imperative in the longer term.

Economic uncertainty leaves consumers unsure about automotive financing

After housing, car repayments are often the single biggest monthly expenditure for a consumer. Indeed, the Financial Conduct Authority has been reviewing personal contract purchases with regards to a more responsible approach to affordability checks.

According to our analysis, while the majority of consumers who purchased their car on credit are comfortable with the repayments (57 per cent), as many as 12 per cent would end their lease completely to reduce their monthly costs. This represents a jump of three percentage points compared to Q3 2019.

COVID-19 response is a credit to the industry

In addition to supporting consumers, many across the automotive industry have also come together to serve the national interest; be it redirecting factory resources to support ventilator production or donating vehicles for the distribution of food and medical supplies.

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