Inside The Industry - ARTICLE - SEPTEMBER 2020

 

Now It’s All Down To September (And The Second Wave!) 

New car dealers are currently working flat out to make the most of September sales and the introduction of the new 70 registration plate. Whilst reports are that September has got off to a good start, dealers are nervous about the final result. And it’s not just about the level of customer demand. Many models are in short supply as a result of the vehicle factories being closed for 3 months. This has resulted in many discounts being reduced, Audi are particularly affected and BMW and Mini have withdrawn from many high discount deals. 

Demand always drops after September as the run up to Christmas starts, although what sort of Christmas we’ll see this year is still a very open question. With the Employee Furlough Scheme coming to an end in October it seems inevitable there will be a dramatic increase in unemployment which is bound to supress new and used car demand, unless new measures are put in place. So the September score is more vital than ever. 

Opinions vary across the industry. Just over half of dealer bosses polled recently expect sales to be below last year, 12% expect them to be “much lower”. However over 60% of these bosses expect the full year score to be s good or better than last year. Given how far behind we are at this point these people are expecting a much better final quarter than I am currently. In spite of this 70% expect to make redundancies with almost 30% expecting these to cover more than 10% of staff. 

As I’ve said before all of this assumes no disastrous second wave. As I write this on September 15th things don’t look good with infections increasing rapidly, although thankfully hospital admissions and deaths aren’t – yet. I don’t personally forsee another national lockdown on the basis the country simply can’t afford it, I hope I’m right. 

Used Car Supply Still Tight, Prices Still Rising 

The used car market remains amazingly strong. Low new car sales since March means less part exchanges coming into the market. Rental and leasing companies and other fleets disposed of hardly any cars through the lockdown period and have sold far less than usual since, partly because they can’t get new cars to replace the old. Many long term lease deals have been extended rather than renewed because customers would rather do this than take on a new 3 or 4 year commitment in these uncertain times. 

Against this shortage of supply used car demand is very strong. Many customers are looking to a newer car so they can avoid public transport, many are spending the money they saved through lockdown and/or the money they saved by not enjoying an expensive holiday abroad. Auction prices have risen rapidly and continue to do so. British Car Auctions report 1500 potential buyers regularly logging on for online auctions, more than double the usual number. We Buy Any Car and Van, owned by British Car Auctions to feed their needs continue to give very high prices on most transactions. And it appears the top end of the market is particularly strong. I recently watched an interview with Britain’s top supercar dealer Tom Hartley where he reported that his business had been very busy throughout lockdown and continued to be so now. His view is that interest rates are so low people with money would rather spend than invest, and that the virus had made people realise their own mortality so they were choosing to enjoy their money while they’re here.  

What happens next to the used market depends on two things. The first is September new car sales. If these are high that means more part exchanges coming in. The franchised dealers will keep most of these for themselves but some will enter the auction area. The second factor is how many new cars are available to the rental and leasing companies because that influences how many cars they can dispose of. The clever traders are those who bought some of the few cars available during lockdown, they have been able to make handsome profits on those. Many are saying they expect prices to decline in October, others are convinced they will stay high for as long as new car supply remains tight. The ones who are right will make a lot of money, but not the ones who are wrong.   

Van Demand Remains Very Strong 

As we all know during lockdown home deliveries rose dramatically. No surprise with many shops closed and people unwilling to leave home. Online food deliveries rose by 122%, other online deliveries by 62%. This time last year internet sales were 19% of retail business, now it’s almost 30%. All the signs are that many people who hadn’t shopped over the net before started to do so during lockdown and liked the experience so have continued to buy that way. And of course all those deliveries require a van. Due to this demand and factory closures new vans are in very short supply. Many manufacturers are quoting January delivery on popular models. Used demand is if anything stronger partly because of the shortage of new, and partly because many customers are preferring to buy a used van rather than sign a rigid long term commitment for a new one. As a result used van prices are literally through the roof. I saw a nine month old Transit with a guide trade price of £15500 go through electronic auction for £19500 last week! 

Not Good News For The Truckers Though 

Whilst van delivery companies are very busy it’s not been the same for truck operators. With the exception of food, agricultural and medical supplies demand has been much reduced. Half of the nation’s truck drivers were inactive during lockdown and 22% of haulage businesses had no work at all. Whilst things are now picking up they are still a long way from back to normal and truck operators and dealers are facing very hard times. 

Air Quality 

It’s long been assumed that motor vehicles are largely responsible for poor air quality in our cities with all the health problems that result. This has caused many of the restrictions on car and commercial vehicle use in cities. However it seems all of this may be wrong. A study just published by the University of Stirling shows that reduced traffic during lockdown did not in fact reduce one of the most harmful types of air pollution. Fine particulate pollution was measured at 70 roadside monitoring sites across Scotland from the start of lockdown and despite a 65% reduction in traffic didn’t reduce significantly. The scientists concluded that vehicles aren’t in fact an important cause of this very harmful type of air pollution and that people may well be at greater risk from poor air quality in their homes especially where cooking and smoking is taking place in poorly ventilated places. 

Meanwhile the motorway speed limits have been cut from 70 to 60 in four locations to cut pollution and some MPs are calling for the ban on the sale of new internal combustion cars be brought forward to 2030. Someone’s right? 

All Change At Jaguar Land Rover 

A new boss has just arrived at JLR at a very difficult time for the company. They were already in trouble before Covid struck because of reduced sales in China and the move away from diesel. Closing their factories for 3 months when showrooms were also closed caused massive losses of course. Product quality is still a problem with warranty costs still well above those of competitors. JLR recently proudly announced at an investor presentation that their warranty costs for the April-June period this year was well below same time last year. No surprise when the dealers who carry out the warranty work and charge JLR for it were all closed! Their owner Tata Motors has been forced to deny rumours the company is for sale. The new all electric Jaguar XJ and the electric Range rover based on the same technology have been put back to save costs. Originally scheduled for launch by now plans are now for hopefully “late this year”. 

So new boss Thierry Bollore faces some big challenges. There seems to be some heated debate about future product strategy at Jaguar in particular. It may be that Jaguar will cease making saloon cars at all. It may be the F Type is to be the last Jaguar sports car with volumes insufficient to justify the investment in the replacement due in a few years time. Jaguar without a sports car????? The future model programme has been cut by about 25% saving £1 Billion and it seems the number of model derivatives JLR will offer in the future has been reduced as a result.  

New Luxury Saloons From Rolls Royce and Mercedes 

New products are planned years in advance particularly at the top end of the market. So no doubt neither of these manufacturers planned to launch their new flagships in the midst of a worldwide crisis. So the new Rolls Royce Ghost and Mercedes S Class have just arrived. Both bristle with technology.  

The Ghost is no longer based on the BMW 7 Series platform but uses an aluminium spaceframe similar to the Phantom. It also gets a new engine a 6.75 litre twin turbocharged unit similar to the one used in the Cullinan. Four wheel drive and four wheel steering come as standard, as do doors which are powered for opening and closing and a GPS based system looks at the road ahead to select the best gear ratio from the 8 available. And so it goes on. Prices start at around £250000 and orders are said to be “strong”. Rolls have announced that they are one of very few manufacturers already back to full production making as many cars every week as they did before the virus struck.  

The new S Class is a positive bargain in comparison with prices starting below £100000 but brings even more technology to the market. Again four wheel steering is featured but Merc customers have two such systems to chose from. The more extreme one offers up to 10 degrees of rear steering angle which results in a turning circle of 10.9 metres, less than an A Class! Mercedes features a mild hybrid version to start with and a more powerful electric motor to come in 2021, Rolls currently don’t bother with such things yet. The S Class is in a first for Mercedes from 2021 equipped with level three autonomous driving capability for speeds up to 37 mph. This will enable to driver to be “hands off” for extended periods in heavy traffic and “suitable sections of motorway”. 

Citroen Launch New City Car 

Citroen have just launched a cube shaped electric city car called Ami. Currently it’s only available in France because it’s been designed around French laws which mean it can be driven by anyone from the age of 14 and doesn’t require a driving licence. Maximum speed is 28mph, pure electric with a range of 46 miles the car seats two people and costs £5300. The car is less than 8 feet long and designed for city drivers looking to avoid public transport. Interestingly not sold by Citroen dealers but direct over the internet and by France’s largest electrical retail chain. Sales are said to be going well. 

More Electric Car News 

At the risk of stating the completely obvious the International Council on Clean Transportation reported recently that Britain is woefully short of electric car charging points. We currently have 22613 public and workplace points which the report says is 15% of what we need in 2025 and only 5% of what we need in 2030. 

Customers do seem to be warming to electric cars. Internet used car searches for Teslas were 98% up in August over last August, the fastest growing brand of all. Meanwhile a survey has shown that 12 million UK motorists are “seriously considering” purchasing an electric car by 2022. Meanwhile I was pleased to see that in the last few weeks senior executives from Hyundai, BMW, Toyota, Mercedes, JLR speaking out about the advantages of hydrogen power. There seems to be a general feeling emerging that while electric may suit smaller cars for city use for long distances, heavier cars and vans and trucks in particular hydrogen is the way forward. Hyundai expect hydrogen and electric cars to cost about the same within 5 years.

 Paul Gilligan

pg@gilliganvc.co.uk www.gilliganvc.co.uk

07785 293222