What can retailers expect when lockdown restrictions are lifted?
On this week’s webinar we explored what the UK automotive industry can expect when lockdown restrictions are lifted. Auto Trader Commercial Director Ian Plummer was joined by Felix Frank Chief Commercial Officer of Europe’s largest online automotive marketplace AutoScout24, to provide insight on what UK retailers can learn from international markets.
What do we know from International Markets?
OEMs will have a significant influence on how quickly the market recovers. Go to market strategy on new cars will impact the whole automotive landscape whether you sell new cars, used cars or both.
Across Europe nearly all OEMs have restarted production. But parts supply and social distancing will slow down production and productivity.
Selling from stock should be a priority. OEMs have 2-3 months of forward stock coverage and some brands have so much stock in the UK they have halted production of right-hand drive cars.
De-risking purchases is proving successful in Germany. Allowing more flexibility with finance packages, including payments insurance if you lose your job.
Government policy and targeted incentives have spurred car buying in China. Significant incentives in EV sales have led to the market recovering to exceed 2019 sales volumes in April. Europe will be hoping for a similar recovery in new car sales and incentives may be necessary in key European markets.
The forecast is optimistic for Europe. The market is down 40% CYTD but projections are for it to recover to -22% YoY.
Google YoY search volumes for motor vehicles also show signs of encouragement. In recovering markets and more recently the UK, search volumes have seen YoY growth.
The latest SMMT new car forecast for the UK is -27% YoY. With anticipation that we may see a bounce in June if retailers can re-open.
Global markets will be looking to replicate the recovery in China, where they were able to exceed 2019 sales volumes in April. (Source: CPCA, ACEA, Automotive News, JATO, CNBC, XINHUA)
This simulation shows how the market is likely to perform if retailers are allowed to reopen on the 1st June, inline with the SMMT forecast of -27% YoY (Source: SMMT)
Lessons to be learnt from international markets
Leads pick up at pace. Lead metrics are up significantly YoY and this has taken retailers by surprise in some international markets.
Acting fast on safety measures helps retailers capitalise on pent up demand. If safety measures are communicated quickly and clearly, it puts retailers in a strong position to capitalise on opportunities.
Confused or wary consumers are more likely to transact online. Retailers that are set up to transact online will appeal to a broader market.
There are new opportunities. Hesitancy around using public transport means there are more consumers looking to enter the car market.
Faster, targeted public policy or incentives can work to stimulate demand. This has proven successful in China based on Government incentives and in Germany with OEM incentives such as flexible finance packages.
Steps to take to a quick recovery
Ensure your business is prepared for increased lead volumes. Update your processes for handling leads if necessary and try to respond as quickly as possible, as this will be key to a strong start.
Selling from stock must be the priority. Sell stock on the ground first to speed up liquidity and benefit from part-ex stock provision.
Digital showrooms will be crucial. Making all stock visible and clearly communicating safety measures will improve lead volumes and sales.
Ability to engage remotely will be vital. Virtual walk-arounds, online transactions or to go even further test drive streaming will all enhance the online buying experience.
Lobbying will be key to get incentives that stimulate demand. Policy could play a role stimulating a bounce back and OEMs have a role to play in bringing demand back to their dealer networks.
Q&A with Felix Frank from AutoScout24
This week we were joined by Felix Frank, Chief Commercial Officer of AutoScout24. The largest automotive marketplace in Europe with some 55,000 retailers, covering 18 countries and c.2.4 million live vehicles. We asked Felix a number of questions relating to our observations, how the situation was evolving in Europe and what our retailers can expect here in the UK.
What are the main differences in consumer behaviour in Europe?
The recovery curve being seen in search has also been translated into demand with sessions and leads up YoY. Economic uncertainty and furlough of employees has led to a reduction in budget and a shift from new to used and used to older used. There has also been an increase in demand for vehicles sold with finance packages, in particular those that offer flexibility around payments.
What trends are you seeing with leads and walk-ins?
Demand is up YoY with an increase in leads, but we are seeing anything between 20%-30% less footfall in the dealership. In Germany, this has been due to the lag between search and following through with the purchase, but also the very public debate between the industry and Government on providing incentives to support the recovery. Some consumers are currently holding out anticipating the financial incentives.
With more leads coming in and fewer walk-ins, how are retailers adapting?
Some dealers were caught by surprise and challenged with the volume of leads after re-opening with a very sharp spike in demand. Double digit increases for many retailers. This was particularly evident for retailers who had phased the return of staff from furlough and were not fully staffed at the time. On the whole, it’s been fascinating how some retailers have used the lockdown period to re-organise themselves and adapt to managing the increase in leads and this new way of retailing.
Is this increase in leads converting to sales and are consumers more engaged at the point of contact?
Conversions are at a lower level at present, but it will take longer for the increases in traffic and leads to filter through to sales. If we revisit in two weeks, we will see a more accurate reflection of conversion.
For retailers what’s the status with furlough are all employees back at work?
Not all employees are back at work. For some retailers this has been a particularly challenging period and has required cost saving. These dealers need sales to pick up before they can commit to bringing all employees back, so not all dealers are fully staffed.
In terms of retailer behaviour how are you observing pricing and valuations?
One possibility was that retailers would look to discount heavily to shift stock and it’s positive that we haven’t seen that behaviour. In a normal year we would expect to see prices increase slightly at this time of year by approximately one to two percent. At the moment, we are seeing pricing remain a little flatter with a slight increase. That would imply that there is some discounting going on but nothing significant with retailers taking a rational approach. Where discounts are offered some dealers have positioned them slightly differently. Sticking to their normal discounting behaviour but promoting them as Coronavirus or online only discounts, targeting those consumers in the market for a great deal.
Have consumers been reassured by the safety measures put in place by retailers to protect them?
I think a professional approach to ensuring the correct measures are in place is reassuring for consumers in that they know they can transact safely. I think this has seen a shift for some consumers who would previously have considered buying privately, moving more towards a trade sale where they know the necessary precautions are in place.
Are you encouraging consumers to promote the safety measures to consumers?
Absolutely. Much like Auto Trader has done with its consumers, we would advise that retailers list their service offerings during this time for consumers. Notifying them how they are operating during this time, whether it be offering video chat, online transactions or delivery. That has been very well received by consumers.
Are OEMs putting incentives in place to kick start the market or are they looking to keep valuations high?
Yes, there are some OEMs that are putting incentives out there, but I think the majority of OEMs are still waiting to see how the market picks up naturally. On the other side I think some OEMs have put incentives in place to change the way their retailers interact with consumers, rather than discounting to drive interest and sales.
What are you seeing in terms of competition at this time from the likes of CarGurus and German backed HeyCar?
Like all automotive marketplaces consumer demand and profit have been a challenge during these times. I think for companies like CarGuru’s in Germany and Italy this was the catalyst for them leaving the market and shutting down their operations. They were the two markets that they had entered in our footprint.
What’s the situation with Public transport and has this impacted the number of consumers entering the market?
Yes, when you see pictures of public transport in Munich it’s pretty empty actually, even though people are going back to work. In our consumer research we’ve also seen that 60% of consumers who don’t own a car are now actively considering buying a car. Especially the younger generations in the German metropolis, who previously had the attitude that they didn’t need a car, are starting to consider buying a car. I’m not sure how that will materialise but at least the indication is positive for new buyers coming into the market.
What encouragement would you offer to our retailers?
Of course this has been a challenging time for everyone and perhaps this is easier said than done, but my observation has been that those retailers who have approached the recovery with positivity and a can-do attitude have adapted quickly with strong ideas and are coming out of this crisis quite well. It’s fascinating how much they have done in such a short period of time.
What can retailers be doing right now?
We have created a comprehensive step-by-step guide on how customers can prepare for lockdown restrictions being lifted and Get Retail Ready Responsibly.
Reset – Consider how you are going to approach the new market and where you have opportunities. Reset your strategy and goals accordingly.
Rethink – Rethink how you will manage viewings and transactions with customers taking into account the safety measures introduced by the Government. How will this change how you do business and what changes do you need to make to your digital forecourt and to your dealership?
Readvertise – The market has changed. Update your adverts to appeal to the buyers of today, showcasing new services or safe practice measures you have put into place.
Review – Review your positioning relative to the market and your competition. Utilise Retail Check and Market Insight frequently to ensure your vehicles are in demand and priced to the live market.
Restock – As the market returns it’s a good time to restock your forecourt and utilise the double contracted stock offer, making the most of your Auto Trader package.
For more information on each of these steps, including checklists for best practice visit the Get Retail Ready Hub.