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Summary
- The second lockdown is expected to weigh down heavily on the ailing car manufacturing and retailing businesses
- September 2020 witnessed a slump in new car demand to lowest levels in the last two decades in the UK
With more than one million active coronavirus infected cases, the British Prime Minister Boris Johnson announced a second national lockdown across the UK. The second lockdown is expected to weigh down heavily on the ailing car manufacturing and retailing businesses in the form of further job losses and squeezed revenue streams. The car industry is already facing a risk of existential crisis in the wake of a nearing Brexit deadline along with a huge slump in sales this year due to coronavirus crisis.
September Slump for Industry
September 2020 witnessed a slump in new car demand to the lowest levels in the last two decades in the UK. According to data released by the Society of Motor Manufacturers and Traders (SMMT), the car sales dropped by 4.4 per cent to 0.32 million in September compared with the same period a year earlier. The month of September has not been good for the automotive industry in the past as well. September 2018 and 2019 witnessed a slump in sales due to a change in emission standards that led to the scrapping of certain car models.
Also read: UK’s Car Production for September 2020 Records Lowest In 25 Years
The sales of battery electric vehicles and plug-in hybrid cars have been encouraging; up by 10 per cent during September. Notably, the demand for electric vehicles has gone up substantially by 184 per cent in September as compared with the previous year. The sectors have been resilient so far; however, the near-term future remains challenging, unless the pandemic is controlled, and consumers and businesses regain their confidence across the economy. So far in 2020, Car sales in the UK have plummeted by 33.2 per cent.
Another thorn in the flesh for the car industry is the Brexit deadline. Throughout decades, the UK’s automotive sector has worked closely with its European counterparts. The UK’s automotive industry is hugely reliant on their European counterparts for supplies of spare parts. In the wake of the pandemic, the world is reducing its dependence on China, which is a major supplier of car spares in global trade. This means the UK is now more dependent on the European nations to protect its ailing sector.
Without a trade deal, the UK car industry could be burdened with tariffs, lack of skilled labour. This can also lead to an unprecedented surge in the loss of jobs. Notably, the UK car industry ranks in the top tier in the world and is a major exporter of cars and automobiles. Moreover, the sector is under pressure from the environmental activists and the government to make a transition towards a less carbon future. Disintegration from the European counterparts could be disastrous for the UK’s automobile sector.
Also read: Discourage polluting vehicles and subsidise electric vehicles
Due to a prolonged crisis, the consumers are adopting a prudent approach while spending on expensive items as they can sense the turbulence and uncertainty in the economic environment. The rising number of coronavirus cases, second lockdown and heightened job insecurity, have led to a slump in new car sales. However, with more than a million active cases and Brexit deadline nearing, consumer confidence has hit fresh lows.
However, this does not mean that Britons do not need cars. Instead, the second wave of the pandemic calls for safer means of transport. Using public transport could be a risky affair. A lot of Britons have therefore resorted to second hand or used vehicles.
Car Dealers strategy
Despite England returning to a state of another national lockdown due to coronavirus pandemic this week, UK’s digital automotive marketplace, Auto Trader Plc (LON: AUTO) has urged retailers to back their pricing mechanisms for their used cars models. They must not factor lockdown in their pricing and avoid revising them in order to entice car buyers. Ahead of the second lockdown, the car dealers have been receiving high volumes of online enquiries for used cars.
October 2020 witnessed an increase of 8.6 per cent year-on-year and has recorded seven months of consecutive growth for used car prices, according to the recent retail price index report released by Auto Trader. The digital automotive marketplace also witnessed 61.9 million visits in October and claims to have seen demand surge by 24.6 per cent in 2020, compared with the previous year. The petrol/gasoline powered internal combustion engines witnessed a growth of 9 per cent since February 2018. In addition, Auto Trader is helping car dealers to reduce cost during these turbulent times as it did not charge them for their advertising packages during the heightened crisis in April and May.
The apex trade body, SMMT along with other car trade associations, have been lobbying with the government to keep their Covid-19 secure dealerships open during the second national lockdown. The decision is expected to come soon after MPs voting is concluded on lockdown.
FTSE 100 listed Auto Trader shares hovered at GBX 573 on 4 November at GMT 8:16 AM +1, marginally up by 0.92 per cent from previous day closing price level.
The UK’s automotive sector is in dire need of a sector-specific deal with the European counterparts. The sector not only provides a lot of employment opportunities but also is a major revenue generator for the economy through its exports. Hence government support is required for the industry to survive and flourish again.
