Car retail sector questions Bank of England’s V-shaped recovery prediction

The car retail sector is divided over suggestions by the Bank of England’s chief economist that the UK is already on track for a V-shaped recovery from the COVID-19 coronavirus pandemic.

Despite being two months into the recovery Andy Haldane told The Times newspaper that the depth of the coronavirus recession was likely to be less than half as bad as the Bank had feared in May.

He said that real-time data on payments, traffic flow, energy use and business surveys suggested that “the recovery has come somewhat sooner, and has been materially faster, than in the (Bank’s) May scenario — indeed than any other mainstream macroeconomic forecaster”.

Haldane added: “It is early days, but my reading of the evidence is so far, so V.”

But Philip Nothard, customer insight and strategy director at Cox Automotive UK, questioned the optimistic tone. He said: “As you say, 2 months in are we not already past the ‘V’ scenario?”

Zeus Capital markets analyst, Mike Allen, meanwhile, suggested that it was too early to predict the shape of the UK’s recovery, just a month after England’s car dealerships re-opened and days after Scottish businesses in the sector were allowed to re-open their doors to customers.  

Allen said: “I still think how companies react to bringing back furloughed staff will have a big impact on economic performance in the months ahead.

“Pent up demand no doubt unwinding but how long this lasts for will depend on whether people have jobs or not in my view.”

On Monday (June 29), Jato Dynamics said that limited car registrations data for May had meant that it remained unable to predict whether the European automotive sector could expect a V- or U-shaped recovery fom the impact of COVID-19.

For some in the UK, uncertainty still surrounds the possibility of a 'second-wave' of the COVID-19 virus, with a regionalised outbreak already set to impact the recovery of retail businesses in Leicester, as AM reported yesterday (June 30).

Motorvise Automotive's Fraser Brown said this week that car retail groups that have embarked on a sales and marketing offensive can expect a swift return to profit, however.

Brown has spoken to the directors of more than 20 dealer groups across the UK and claims to have discovered a clear divide in approach between those determined to generate income and those wishing to minimise losses by stalling marketing campaigns and ensuring staff remain on furlough.

Brown said: "Those are the dealerships facing a loss in June while those that unfurloughed staff and restarted marketing activities in May, in anticipation of the June 1 reopening, are expecting to make a profit."

Many dealers have reported good levels of used car sales, according to Brown – with several sales-led groups that work with North Yorkshire-based specialist sales consultancy achieving 130% to 180% of ‘normal’ unit volumes, and about £1,480 price per unit, up on normal levels.

He added: "These are the dealers with their sales and marketing teams operating at full capacity. One of these organisations I’ve spoken with is forecasting a record net profit for June."

Those dealerships that bought used cars and filled their workshops with vehicles undergoing preparation prior to the lifting of restrictions are finding used car sales surging ahead of last year, week on week, as they can feed demand.

Brown said: "There is a direct correlation between the percentage of a dealership’s sales force back at work, and income generated by finance and insurance products – the lower the percentage, the lower the income.

"Selling a car is only a third of the job. Once deliveries of new and used car sales catch up with the sales volumes of recent weeks, the workload on those fewer salespeople within risk averse businesses will result in a drop-in conversion ratios.”

Last week MotorVise Automotive announced a new partnership with Drive Assured and The Compliance Company to form the Motor Alliance - a new business aiming to drive car dealers' profitability.