#33 - Back with a Bang!
It’s been an “interesting” couple of months to say the least. Facemasks, furlough and the R-Factor have all been inducted into our everyday vocabulary. We have accepted the home office as the only office and are now relatively at peace with the obligatory 30 minute queue to get into the supermarket…….an experience that if you had faced it 6 months prior, would probably have left you penning a fruitily worded letter to the store manager explaining how in this day and age, that kind of wait time is completely unacceptable.
Anyway, a new norm has been established which regardless on your view point is likely to change the way we function, operate and generally think about our lives way after ‘Rona has been and gone.
The good news however is that slowly but surely normality is being restored to our society and one of the net benefactors appears to be the second hand car market. Firstly to dazzle you with some figures; in April 2020, UK new car registrations were down 97.3% YoY (that’s not a typo)…….4,321 new cars were registered, a figure not seen since February 1946 in the wake of WWII. Although a monumental fall, if you are using it as a bellwether for the UK car market or worse, some kind of GDP indicator; it should not be taken at face value for a couple of reasons.
Firstly the largest buyer of new vehicles these days are not you or me or Joe Blogs; they are in fact the institutional fleet buyer who is typically bulk buying sizeable amounts of new cars for rental or leasing purposes. Ever wondered why your Avis rental car is at worst 1 year old…….this is why. They buy, use for a very short time and then move on. Anyway, if people aren’t travelling, rental companies sure as hell ain’t buying new cars.
Secondly, while nothing beats the smell of a new car or the artificially low APR to entice you into the deal, its times like these when depreciation becomes a more widely feared reality. Even though it’s always been there, the risk adverse gremlin inside all of us likes to keep us safe by reminding you that your new car is likely to depreciate like a b*tch over the next year given all the current uncertainty.
However, just because people are not buying new cars, it doesn’t mean they are not buying cars full stop. In June, Auto Trader reported an 88% YoY increase in used car enquiries as dealerships reopened. Here at CC I can confirm that June was our busiest sales month since we opened and it seems like every other dealer I speak to is experiencing a similar level of activity.
So consumer appetite has shifted yes but the more important factor here and as we guided to back in April is that consumer appetite is more ferocious than ever.
Have used performance car prices dropped materially? In short no, and the insatiable demand coupled with current undersupply in the market is guaranteed to keep prices buoyant for some time to come.
So how does it all play out over the next 12-24 months? New car manufactures have a bit of a headache to deal with. In an already competitive market place where margins have been on the thin side for a while now, I believe the only real edge they have in bolstering new car sales figures is offering comprehensive aftersales packages. Lamborghini’s with 5 year warranty and service packages comes to mind…. They have already maxed out their credit card on clever financing rates and with specialist lenders now able to all but match them on used vehicle lending, that former competitive advantage has disappeared.
Meanwhile on the used car side, my view is that this is not a couple of months of pent-up demand being blown off……this is 3 years of pent up demand from Brexit uncertainty which has just been extended by a couple of Corona months at the end. Yes there is likely to be a second wave of COVID cases and yes it’s likely we see both redundancies and companies sadly closing their doors over the next couple of months but let’s not forget we are currently living in an all but zero interest rate world with unprecedented fiscal support…….I think they want us to buy stuff!
Happy Motoring,
Greg