Car Finance Applications Rise During July And August- Stocks of AUTO and LOOK in Focus

Summary

• Car finance applications, including both Personal Contract Purchase and Hire Purchase agreements, have risen considerably in the month of July and August.
• July witnessed a surge of 27.7 per cent in car finance applications in comparison to the 2019’s figures
• People are still avoiding the use of public transport on fear of falling prey to the contagious virus

The automobile sector is one among the many sectors, which has been severely hit due to the lockdown imposed because of the Covid-19 pandemic. Though, as soon as the lockdown was completely lifted in July, the car retailers recommenced operations with enhanced safety guidelines.

Scores of people have lost their jobs due to the economic impact of the novel coronavirus. In general, people have gone into savings mode and are refraining themselves from the non-essential expenditure. However, according to the latest release from Experian (LON: EXPN), a global data analytics firm, there is a sigh of relief for the automobile sector as there is a huge rise in car finance applications for the month of July and August in comparison to previous months.

It seems that the battered sector is about to breathe a new lease of life. According to the data, there has been a considerable amount of surge in car finance applications. There is a section of the society whose income seems to be unaffected by the coronavirus crisis and who can afford to buy. Moreover, there are people who are uncomfortable using public transport as they want to avoid the risk of falling prey to the contagious virus.

The showrooms have reopened in June. Since then, car finance applications including both PCP (Personal Contract Purchase) and HP (Hire Purchase) agreements have risen considerably in contrast to the same period in 2019.

July witnessed a huge jump of 27.7 per cent in the number of car finance applications in comparison to the 2019’s figures. In addition, the first three weeks of August witnessed an increase of 18.6 per cent in car finance applications due to the release of pent up demand. Also, according to the UK’s largest credit check group, many people have searched for ways to finance a car purchase in the coming weeks on its online platform, which facilitates car finance deals.

(Source: Experian Release)

Car manufacturing gathers momentum

The car manufacturing output for the UK had declined by more than 20 per cent in July, and close to 86,000 units were rolled off the production lines, as reported by the Society of Motor Manufacturers and Traders, which is the apex trade body.

Nearly all factories reopened with the ease in global lockdown measures, consequently, the month of July witnessed the rise in production levels as well. However, as per the Society of Motor Manufacturers and Traders (SMMT) data, it seems the shocks of the ongoing economic uncertainty coupled with the social distancing measures made its impact and the output remained low.

Production for the UK market witnessed a modest recovery in the month of July when compared to previous months of May and June, as a majority of the car showrooms of the country were able to open all over. Car exports declined, but the numbers were slightly less substantial -16.8 per cent to 72,262 units in July. The sector witnessed the demand for the latest cutting-edge models in the overseas market.

On the year to date scale, the coronavirus pandemic has severely dampened the UK market, demonstrating a loss of 307,707 cars (YoY), while the overall production turned lower by 39.7 per cent. In the year till July, overseas shipments suffered a sharp setback, declining by 38.5 per cent to 381,273 pieces.

(Source: Society of Motor Manufacturers and Traders Report)

Also read: UK Car Output Plunges by 48.2% Year on Year in June 2020

Let us have a look at two businesses, which could end up being in the money due to the surge in car sales and finance applications.

• Auto Trader Group Plc

United Kingdom-based company, Auto Trader Group Plc (LON:AUTO) offers a digital automotive marketplace, which comprises of new and used car listings. In addition, the company offers online tools to enable customers in taking decision by their own.

Auto Trader Group has recently acquired “AutoConvert”. It is an application software which facilitates the offering of financial products, compliance along with integrated customer management tools to gauge further insights of the automobile sector. The acquisition of this platform (from the owner Blue Owl Network Limited) is expected to add around £1 million in revenue for the next fiscal year.

For the fiscal year 2020, the company’s revenue was up by 4 per cent to £368.9 million. The company managed to prune its net debt levels by £31.7 million to £275.4 million in 2020. Total dividend for 2020 stood at 2.4 pence per share. The company had offered a discount of 25 per cent on its offerings in June.

AUTO shares, on 3 September 2020, at the time of writing (GMT 12:28 PM), were trading at GBX 570.80, up by 0.67% against the last day’s closing price. The return given by the stock in YTD has been in negative of 4.55 per cent.

• Lookers Plc

United Kingdom-based group, Lookers Plc (LON:LOOK) operates as motor retail and aftersales business. During the two-months ended 31 July, the trading remained robust for the company as all trading locations in England were up and running.

The company witnessed a rise in new orders in both vehicle sales and aftersales for the month of June and July. The company has carried its momentum into August as well.

LOOK shares, on 3 September 2020, at the time of writing (GMT 12:29 PM), were trading at GBX 21.00, unchanged against the last day’s closing price. The return given by the stock in YTD has been negative of 62.77 per cent.

Both the companies are in car sales, both new and used. Market experts believe that the used car segment is likely to outperform the new car market in the near term. At the moment, people are looking at convenience and safety, and hence July witnessed some rise in sales for the first time; however, these figures still lag behind the pre-pandemic levels. Also, assessing the market seems difficult at this point in time, and the real scenario can be envisaged only when the jobs support scheme ends.