Update on the automotive sector

The Deloitte Consumer Tracker Q1 2021

Consumer confidence saw its highest jump for ten years following the announcement of a road map for lifting COVID-19 restrictions, the chancellor’s renewed support for workers and the vaccination programme remaining on track. The Deloitte Consumer Confidence Index rose by six percentage points quarter on quarter to – 11%, representing the highest rate of growth in the ten-year history of the Deloitte Consumer Tracker.

After a difficult year in 2020, during which new car sales dropped by a third compared to 2019, the automotive sector continued to suffer in Q1 2021 as new car sales fell by a total of 12% compared with the same period a year ago. This drop was driven by a substantial fall in car sales throughout January (-40%) and February (-36%). By contrast, March saw sales up by 12% year on year, although that improved performance will be treated with caution. The March 2021 figures allow comparison across two lockdowns for the first time, and while the return to growth is encouraging for the sector, the overall volume of sales remains below pre-pandemic figures.

With showrooms remaining closed to the public throughout Q1, private sales at -18% lagged far behind fleet sales (-6%), highlighting the importance consumers attach to physical dealerships. For individual purchases, click and collect has proven an important lifeline for dealerships throughout the pandemic. In fact, dealerships that have been able to offer a full online experience have fared much better than their competitors.

Lockdown’s electric trend continues

Throughout the pandemic, electric vehicles (EVs) have consistently outperformed the market. Q1 2021 was no different with battery electric (+74.1%) and plug in hybrid (+93.6%) both seeing major year-on-year growth. As a result, they held a combined market share of 14% this quarter. This is double the market share held in Q1 2020, and ahead of pure diesel sales which now only command an 11% share of the market.

However, with cuts to EV subsidies on the horizon, sales are likely to be impacted across some segments of the market. The price premium associated with an EV over a petrol or diesel equivalent remains a barrier for many consumers and where subsidies have been reduced in other markets, there has been a decline in sales.

While the proposed cuts will not remove all incentives, and many models still remain eligible, communicating the other cost savings of EVs will be even more important. Those savings include benefit in kind taxes, or the overall running costs – including fuel and maintenance – over the course of an EV’s lifetime. Within the next few years, the cost of technology will decrease allowing EVs to achieve price parity, but until that happens, the total cost of ownership over the lifetime of the vehicle is a persuasive argument.

Around half of new registrations are fleet and company cars so businesses also have a greater role to play in driving the growth of EVs. The value of benefit in kind for electric cars, and the opportunity to structure this through salary sacrifice, will continue to be the main driver of fleet sales, providing an ongoing financial incentive for businesses and their employees to switch.

For personal purchases, a fully functioning used EV market will be important to maintain take up, particularly among cost conscious consumers. Brand new vehicles typically take three years to enter the used-car market so incentives for this segment could prove beneficial.

Improved consumer finances ease affordability concerns

Throughout the pandemic, the affordability of car repayments has been in sharp focus, with many consumers asking to defer repayments. Our data highlights the desire of consumers to downgrade their vehicles and pay less.

However, limited spending opportunities over the last quarter have allowed some consumers to pay off debts and increase their savings. Consumers are also more confident about their disposable income. As a result, there is less concern over the affordability of car repayments, with 56% of consumers happy to keep the status quo compared to 51% in Q4 2020.

Records set to be broken

Despite a one percentage point decline in consumers planning to purchase a car over the next three months, the stage is set for a strong Q2 2021. Increased levels of business optimism should continue to fuel growth in the fleet sector. And, with showrooms reopening on 12 April, an enthusiastic return of consumers and their increased savings, could even see sales approach their 2019, pre-pandemic levels. Given that Q2 2020 sales were so heavily impacted by the first national lockdown, the pent-up demand alone should see all records for growth within the sector broken next quarter. However, for obvious reasons, manufacturers and dealers alike will be careful not to judge their performance on the basis of beating last year’s sales.

If there is an uptick in demand, the ongoing shortage of semiconductors could have challenging supply implications for manufacturers. As a result, some consumers may need to wait longer than expected for the car they want.

The Deloitte Consumer Tracker Q1 2021

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