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Has the car industry recovered from Covid?

1 year ago

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Writer:

Dan Prosser | Ti co-founder

Date:

10 May 2023

We were joined on the podcast last week by Ti contributor and former editor of Car magazine, Gavin Green. He’s one of a number of Australian journalists who cut their teeth on newspapers Down Under before landing in the UK and completely overhauling the car magazine sector in this country. Fellow Ti writers Mel Nichols and Peter Robinson belong to the same cadre of Aussie journalists. 

In the podcast, Gavin talks about his early years working on news desks in Sydney, his promising racing career that was cut short by a heavy crash, why he chose to leave his homeland for Europe and what it was like to take the helm at Car in 1987. If you haven’t listened already, you really ought to. (Search ‘The Intercooler‘ on whichever podcast app you use.)

Has the car industry recovered from Covid?

Gavin knows the automotive industry inside out and I wanted to get his view on how the sector is rebounding from the most turbulent time in its history, and what the near future might hold for it. This is the right time to ask such questions, too, three years after the first Covid lockdown. He pointed to one particular threat, that being low-cost Chinese-built EVs that undercut anything that’s being produced in the West: ‘This is of huge concern to Europe’s car makers. I think Europe’s motor industry is in a very dangerous position. We’re going to see the most enormous changes as we transition towards electric cars with the balance shifting to China and Korea, probably in that order, with Japan third in Asia. Unless we get our act together pretty quickly I do fear the industry in this country is going to massively contract with a great loss of skills and jobs.’

There has never been a time like it for the car industry. Not only does it continue to wrestle with the switch from internal combustion power to EVs, and not only did the sequence of Covid lockdowns in 2020 do untold damage, but all of that was quickly followed up by the semiconductor shortage that saw production lines all but grind to a halt. Moreover, the war in Ukraine led to yet more supply issues, uncertainty around Brexit did even more harm and a faltering global economy meant all of this was happening against an already very challenging backdrop. Soaring interest rates won’t have helped either. 

Has the car industry recovered from Covid?
Dealerships had to adapt quickly to open doors to buyers

One curious side-effect of all this was a sharp increase in the value of used cars, since new cars were so hard to come by. Many people found themselves being offered more for their second-hand cars than they paid several years previously. 

In a perfect storm, it’s a wonder several car makers didn’t go out of business altogether. Just how bleak did it look? In April 2020, new car sales in the UK dropped by 97 per cent – which perhaps isn’t so surprising given we were all stuck at home. That was clearly an extraordinary month, but the full-year picture was pretty grim too – we bought 31 per cent fewer new cars in 2020 compared to the year before. 

The sector has battled back since then, but the latest figures show its recovery is far from complete. Data compiled by the Society of Motor Manufacturers and Traders point to an eighth consecutive month of growth in March this year and the best first-quarter performance since 2019, before the pandemic hit. Nevertheless, the market was still down almost 30 per cent compared to the same period four years ago. 

Has the car industry recovered from Covid?
Used values rocketed as a result of new car supply issues

Anecdotal evidence paints a similar picture. On Twitter, one user told me ‘new car supply issues are far from over’. He works as a stock manager for a franchise dealer and said used car values are still inflated and good stock increasingly hard to come by. Another had been waiting for more than two years for a new Volkswagen with no delivery date in sight. One respondent ordered a Skoda Octavia vRS in November 2021 and still hadn’t been told when it would arrive. 

A few years ago, said another trader, the best deals were on nearly new stock or ex-demo cars. If you wanted to specify your own new car, you had to be willing to pay the extra. ‘With no new cars being available the pendulum has swung, so a car in stock that is available now holds a considerable premium over a car built to spec,’ he explained. 

Has the car industry recovered from Covid?

I asked our car finance partner, JBR Capital, what the sector looked like from its perspective – after all, knowing precisely what’s going on month by month in the used car market is literally the company’s business. ‘During the early stages of the pandemic, we witnessed a surge in demand for used cars, leading to a spike in prices,’ I was told. ‘A lot has changed since then and there has been some stabilisation in the used car market. Price fluctuations have certainly calmed and supply has increased. This can be reflected in the high-end sector as prices for luxury cars and supercars have, in many cases, stabilised in the past six months.’

So it seems the recovery is in full swing, but there is still a fair old way to go yet. Does that tally with your own experience? Maybe your second-hand car is still worth more than you ever imagined possible, or you’re still struggling to get delivery on a newly built car. Or does it all seem like it’s back to normal? Please let me know in the comments.

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