In Conversation: Outlook
Cox Automotive Outlook
Philip Nothard, Insight and Strategy Director
It would be easy to look back at 2020 and chalk market performance up to ‘unprecedented’ events, to talk about a return to ‘normal’ and to suggest that 2021 will inevitably be better. However, if we unpick those statements, things are a little more complicated than they first appear.
While the COVID-19 pandemic has been – and continues to be – a significant challenge for the automotive sector, the idea that we have experienced anything ‘normal’ for the past 15 or even 20 years is a falsehood. The reality is when reviewing the new and used car and van markets since 2000; there has very rarely been a long period of stability before external forces made their presence known.
Look back to 2019, and we’ve seen RDE (Real Driving Emissions) play a role in impacting on supply. In 2018, it was WLTP (World harmonised Light vehicle Testing Protocol). Uncertainties around Brexit have been bubbling away for several years. From 2007 to 2014, the fall-out from the financial crash was evident in market results. Block Exemption is on the horizon and, of course, COVID-19 has been the villain of the piece in 2020.
Whether emissions legislations and manufacturer scandals, political transitions and economic challenges or regulator intervention and market competition, the automotive sector has always had something to respond to, some external force influencing trends and patterns of behaviour.
With that in mind, forecasting becomes both more challenging and more significant. Organisations throughout the automotive supply chain need to understand the conditions that underpin industry transformation; prepare for the large-scale changes which are affecting the industry today and have a contingency in place to deal with the unknown challenges which are just over the horizon.
The immediate impact of COVID-19 has been to accelerate digital transformation in both the wholesale and retail markets.
If we are suggesting there is no such thing as normal, the other key factor that remains true is that consumer behaviour is underpinning industry paradigm shifts. Whether we talk about digital transformation, electrification, connectivity or, indeed, responding to the short-term market shocks, it is the will of the consumer which plays a significant part in how successful such transitions will be. The driving force for industry change is the consumer behavioural response.
As an example, the immediate impact of COVID-19 has been to accelerate digital transformation in both the wholesale and retail markets. However, it will be down to consumer demand and behaviour as to whether these trends stick, or there is a return to more physical and face-to-face ways of doing business. If the consumer wants to transact online and accepts that transacting online will play a larger role in the automotive journey, then the shift to online will accelerate. If consumers are resistant, however, unlikely this may seem, it will take longer.
Likewise, when it comes to electrification, government subsidy and intervention will play a key role in making mainstream EV adoption a possibility. Incentives will nudge businesses and consumers into a faster adoption curve. However, the success and speed of transformation will still, at its core, be dependent on consumer take-up and interest in going electric. At a time of such economic uncertainty, the price premium which electric represents still presents a significant barrier to mainstream adoption.
If vehicle prices go up through Brexit, then the market will be impacted by consumer choice and demand. The shape of the market in the years to come will be affected by consumer demand for new vehicles, whether they choose to downgrade and select more affordable brands, and how easy it is for them to choose the right vehicle for their needs.
Indeed, what we’re suggesting here is that organisations in the automotive sector clearly need to pay close attention to the immediate influences on the market – Brexit, COVID-19, emissions legislation and so on. However, underlying the turbulent new and used car and van markets, sits a platform of consumer behaviour, trends, data and market insights.
We are there to help the B2B sector navigate and respond to changes; complementing and consulting with customers, not competing with them.
Our role at Cox Automotive is to support customers through both the good and turbulent times. We operate globally, providing insight and intelligence that helps everyone to make better-informed decisions. If the consumer is the driving force, we are there to help the B2B sector navigate and respond to changes, complementing and consulting with customers, not competing with them.
If people want to buy and/or drive cars and vans, and we believe they do, then there will still be a need to fund, transport, prepare, retail, and remarket those vehicles. From vehicle services and logistics to digital services and strategic partnerships, automotive organisations must know they have partners they can trust, particularly as the sands are shifting beneath us daily.
Looking ahead to 2021, there are still 36m used vehicles on the road in the UK. Used wholesale car prices dropped 2.1% in October after a strong performance since dealerships started to reopen in June. The used market, car and van, is likely to remain strong into next year, as social trends such as online delivery growth and the avoidance of public transport drive up demand. However, values are set to realign from current highs, particularly for cars.
For new vehicles, the immediate picture is less certain. Supply constraints continue to have a significant impact, and this is likely to get worse before it gets better. Rising unemployment, the economic downturn, increased taxes, growth in indebtedness, and ongoing market consolidation are all likely to drive market changes. Brexit and COVID-19 are also both still firmly on the radar, with the associated tariffs, plant shutdowns and global vehicle allocation decisions.
Whatever happens in the short term, there is no getting away from the need for the entire supply, distribution and retail chain to evolve. With continued disruption from online retailing, electrification, connectivity, micro-mobility, and, eventually, autonomous vehicles, standing still is not an option.