How to boost the used-car market post Covid-19

Authored by QBE Sales and Development Manager Simon Fletcher

Partnering with a trusted warranty provider can enhance customer loyalty and provide an additional source of revenue, a valuable asset during these difficult times, says Simon Fletcher.

Strict lockdown measures have now started to relax, enabling vehicle dealerships to return to work. However, as the UK emerges from lockdown, the business environment is not expected to return to ‘normal’. Dealers may have to reinvent themselves if they are to survive.

Future demand

The closure of car dealerships during the lockdown has been a big blow.

New car sales all but halted in April, down a record 97% and the lowest monthly level since 1946, according to the Society for Motor Manufacturers and Traders. The body now expects just 1.68 million new car registrations in 2020, the lowest since 1992.

Any recovery in the UK car market will be tied to the economy, where the outlook is highly uncertain. In May the Bank of England warned that GDP could contract by 28% in the first half of the year, and by 14% for the whole of 2020, the deepest recession on record. Such a slump would almost certainly be accompanied by high unemployment - the Bank estimates that the unemployment rate will double to 8% this year.

As business is allowed to resume, dealers could experience a surge in sales as pent up demand is released. However, this is likely to be short lived, and give way to a period of weak demand if consumers are financially distressed or uncertain about their prospects. Even if demand were to pick up, dealers may face difficulties meeting orders. Manufacturers are only now restarting production and disruption to supply chains could continue with social distancing or any resurgence of Covid-19.

Potentially the government could step up and help stimulate demand in the car market, as it did with a scrappage scheme following the 2008 financial crisis. The switch to electric vehicles could also provide hope, in particular if the government were to provide incentives. Prior to the outbreak, the electric car market was expected to double in 2020 as new models bolster the market.

Virus effect

The coronavirus pandemic is likely to have a profound impact on the automotive industry, affecting consumer behaviour, operational costs and vehicle values.

Faced with economic uncertainty, some consumers are likely to defer purchases or plans to change models, while dealers may see values of vehicles on forecourts depreciate, in particular if they succumb to discounting as a way to stimulate sales or generate cash.

Even before the pandemic, car dealerships were already under pressure from falling sales and uncertainties surrounding diesel cars and government targets to reduce emissions. Covid-19 will put many dealers and networks under increased strain, potentially triggering consolidation in the sector and accelerating growth in online sales.

Alternative revenue

With new car sales likely to be subdued, used car sales could offer some relief, as might additional services like vehicle repairs and servicing, as well as protection products.

Vehicle warranty sales offer a much needed source of income to dealers, and a valuable product to their customers during this period of uncertainty.

Warranties give used car customers confidence in their purchase, but they can also benefit existing customers opting to delay changing vehicles.

Dealers could provide warranties to customers when existing dealer or manufacturer warranties warranty period expires, giving them peace of mind until the resume plans to change vehicle.

As well as providing an additional revenue stream, warranties also help build customer retention. Customers that purchase warranties are more likely to use their dealer for servicing and vehicle repairs, and potentially for their next vehicle purchase. A growing number of dealers have adopted a more customer driven model, looking to service customers during the life cycle of their vehicle, rather than focus only on point of sale.

Re-invention

As lockdown measures ease, car dealerships will need to re-think their business models to adapt to the new operating environment. This is not so much a re-start situation as a re-invention environment.

This re-invention is likely to see a greater role for digitalisation. A number of car dealerships were able to maintain a level of sales through the lockdown via digital platforms, a trend that is likely to accelerate with social distancing and economic pressures.

However, as dealers rely more on online platforms for sales, servicing and to manage customer relationships, they will, however,

need partners that can offer integrated digital offerings.

QBE has invested in its digital platform, which speeds up and simplifies the process of delivering vehicle warranties, either at point of sale or as a post-sale option.

The platform can be integrated into a dealer’s own systems and branding, and is able to use customer data to automate and target marketing, potentially increasing warranty sales.

As a leading provider of vehicle warranties, QBE has built a reputation as a reliable and forward thinking partner in the automotive sector.

During the lockdown, for example, we have maintained consistent service levels, handling claims and repairing vehicles with little or no delay. We continue to develop our offering and support our clients in what will no doubt be a challenging and uncertain environment.