Hope of Revival In Beaten Down Automotive Industry Post Lockdown

Summary

• Automotive industry back into business with factories scaling up production
• Hopes of revival with new strategy combating the threat of COVID-19
• Demand to be driven by people who don’t own their personal vehicles
• Marshall Motor has reopened all its 117 showrooms from this Monday
• Lookers PLC opened its showroom in England from June 1

The pandemic COVID-19 outbreak ensued a shutdown of 'non-essential' retail sector leading to a crash in auto manufacturing and dealership. British car production declined 99.7 per cent year-on-year basis in April 2020 as manufacturing plants were forced to shut down due to the coronavirus-induced countrywide lockdown in the United Kingdom.

As per the industry report, just 197 cars were manufactured in April out of which 152 were produced for export. The revenue of some UK car manufacturers have even slashed to zero during the lockdown while the total annual loss of output is reportedly estimated to cost up to £12.5 billion to industry at factory gate prices, as per the Society of Motor manufacturers and Traders (SMMT).

Automotive Industry Back into Business

Car showrooms in England have reopened on June 1 with a condition for businesses to uphold health and safety measures as per the Prime Minister Boris Johnson’s three-phased lockdown exit plan. COVID-19 whipped the UK’s auto industry which has been a major car exporter in the world with nearly 80% of its production output being exported to other countries and ensuring employment of over 800,000 people.

Factories have started scaling up production in line with different timeframes, social distancing norms and restricted output. However, it is still expected that the output loss would account to nearly 400,000 united by the end of 2020 in comparison to the January outlook, as per SMMT.

Hopes of Revival with New Strategy Combating the Threat of COVID-19

 Automotive industry would return to work with a new strategy, implementing all the norms of social distancing. Though car showrooms are spacious, but customers and employees are reportedly directed by the car dealers and retailers to follow additional sanitation and safety measures in demo session, test driving, payment and post services.

Many showrooms have placed Perspex barrier near the reception desk, and have adopted one way system on floor markings to maintain social distancing and contactless deals. The industry considers these measures necessary to bring back the confidence of customers and provide strength on the demand side. SMMT believes that reopening of new car market could take off the pressure from public transport as Britons return to work.

Chief Executive of SMMT, Mike Hawes stated that car showrooms are now ready to return to work and help the UK economy get restarted. He cited the reopening of spacious garden centres in Wales, England and Northern Ireland on 13 May as the proof to safe business operation during lockdown with the leverage to accommodate social distancing norms easily due to spacious premises.

Demand Scenario

Market believes that demand scenario could greatly be driven by the people who do not own their personal vehicle as the epidemic nature of coronavirus has persuaded general public to avoid common public transport. The rising concerns of health safety could thus be the major factor steering the rise in purchase of new cars. Moreover, to provide impetus in this prospective market, car dealers and retailers are planning to launch significant discounts and bring down the cost to make it affordable. The optimism around demand scenario could also help dealers in bringing back their furloughed employees at work.

Let’s have a look at the performance of some auto dealers publicly listed on London Stock Exchange.

Marshall Motor Holdings PLC (LON: MMH)

Marshall Motor Holdings is one of the United Kingdom’s leading automotive retail group with the presence in across 28 countries. The company operates through its core retail segment focused on sales of new and used vehicles along with other business divisions for ancillary services such as repair, aftersales services and parts sales. 

Auto dealer, Marshall Motor has reopened all its 117 showrooms from Monday under eased lockdown measures as the economy begins to reopen. However, the company’s stock price is still trading in red.

MMH dropped 0.42 per cent, to trade at GBX 117.50 on 3 June as at 12:30 PM GMT. The 52 week high for the stock is GBX 170.00 and a 52 week low sitting at GBX 80.00.

Pendragon PLC (LON: PDG)

Pendragon is an automotive online retailer with the business primarily focused on sales of used and new vehicles with leasing and wholesale parts distribution services. The company mainly operates through six segments that include Stratstone, Evans Halshaw, US Motor Group, Pinewood, Leasing, and Quickco. 

The stock of Pendragon is trading at GBX 8.90, up 3.49 per cent, on June 3 as at 12:36 PM GMT. The 52-week high/low of the stock is presently recorded at GBX 24.45/GBX 4.02, respectively.

Lookers PLC (LON: LOOK)

LSE-listed Lookers PLC is one of the consumer preferred motor retail and aftersales companies that operates through two business divisions- motor distribution and parts distribution. The company has partly resumed its operations and plans to reopen its showroom in Northern Ireland from June 8, 2020. However, the company has already opened its showroom in England from June 1 and has decided to operate remotely across Scotland. Further, Lookers confirmed to offer arrangements for both showroom collection and home delivery in adherence to the comprehensive health measures.

Lookers’ stock is trading at GBX 22.15, down 3.91 per cent, on 3 June as at 12:46 PM GMT. The 52-week high/low of Lookers Plc’s stock was observed at GBX 88.0/GBX 10.54, respectively.

Auto Trader Group PLC (LON: AUTO)

United Kingdom-based, Auto Trader Group offers digital automotive marketplace to consumers with the option of selecting new and used car from the listing. The company derives a large part of revenue from the number of cars being advertised on their website and through financial advisory services it offer to customers for car valuation and other motoring related services.  As car showrooms set to reopen after months-long lockdown, Auto Trader is expected to witness a sharp rise in advertisement demand to attract people getting backing to work.

On June 3, Auto Trader Group’s stock is trading at a price of GBX 558.60, down 0.61 per cent, as at 12:59 PM GMT. The 52-week high and low of Auto Trader’s stock was recorded at GBX 613.80 and GBX 308.60, respectively. Market capitalisation of the company is reported to GBP 5.42 billion with the beta of 0.6947, reflecting lower volatility compared to the benchmark.

UK’s automotive industry, like other non-essential sectors, greatly depends upon the future demand scenario so as to revive the beaten down market. However, the mass lay-off and loss of regular income has brought forward a turnaround in consumer spending landscape where people are not choosing to spend on non-essential items. In such a scenario, the future outlook remains highly uncertain requiring the close and regular analysis to have a clear picture of industry growth.