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The winding road to recovery

Thursday 12 November 2020 Data Insight & Analytics

James Debenham's picture
By James Debenham

The latest New Car market figures for October reveal that the Automotive Industry has had another tough month (albeit with a few marques proving notable exceptions to that trend).  With September’s figures also proving disappointing it is fair to say that the recovery has been slower than many had hoped for.  And with car showrooms in England being closed in November –  despite the excellent efforts that all manufacturers have made to make their dealerships COVID-secure – it is clear 2020 is going to be as difficult for the industry as many feared.

Consumer confidence in the wider economy has always been the bellwether of the automotive industry’s fortunes. And I certainly wouldn’t deserve a nomination for the Nobel Prize for Economics for stating that the economic and social uncertainties that CV-19 has wrought have clearly subdued demand for new vehicles.  But what is interesting is how the different consumer groups have reacted to the changing circumstances, as this helps explain recent industry trends and, importantly, has implications for the future recovery of the car market.

 

HOW HAS COVID IMPACTED CONSUMER CONFIDENCE IN THE CAR MARKET?

Throughout the COVID pandemic CACI have been tracking consumer attitudes and how the ongoing situation is changing their behaviours.  One of the questions our surveys have been asking is how the situation may have impacted their decision to purchase a new car.  The surveys have confirmed what many have speculated; that the ongoing situation has caused a proportion of consumers to defer their purchase for another year. Throughout the survey period the proportion of respondents returning this answer has remained reasonably constant, dropping by only 3 percentage points – from 35% in May to 32% in September.

 

 

Although this indicates continued short-term pain for the industry in 2020 and maybe early 2021, the good news is it appears that these consumers are still intending to return.  More positively, the proportion of those who state they are no longer in the market at all has dropped 4pp since May, suggesting that the initial impact on consumer confidence at the height of the first wave in April/May is showing signs of easing.  And even more heartening for the industry is that the proportion who state that they will purchase as soon as possible has risen by the greatest amount: 6.5pp between May and September.

 

CONSUMERS ARE RESPONDING TO COVID IN DIFFERENT WAYS

However these overall figures only tell part of the story.  Our wider COVID market research has shown that the ways in which consumers have reacted to COVID, in terms of changing behaviours and attitudes, varies enormously depending on their circumstances, lifestage and demographics.  And that would certainly be the case with regards to their attitudes towards the new car market.

Intriguingly it is among the Acorn Category Affluent Achievers that we find perhaps the most surprising results.  This category, which contains the most affluent Acorn types who are arguably the most resilient to economic impacts of COVID, has one of the highest proportions of all Categories of those that say they are no longer considering buying a new car. And this has not changed at all over the survey period. The better news here is that the proportion who say they will buy soon or within 3 to 6 months has risen and is stable at 50%. Nevertheless, this perhaps goes a long way to explaining why the automotive market has not recovered as fast as many were hoping because Affluent Achievers are a key car-buying demographic.

 

 

Looking a little deeper into this Category reveals some further clues as to the current situation.  For the Acorn Group Mature Money, characterised by older, affluent retirees and empty-nesters, the proportion of those saying they will buy immediately has remained constant (c.30%) but the proportion who are no longer in market has doubled from 11% to 22%.  Looking at Executive Wealth and the picture is more optimistic.  The proportion of these affluent mid-to-late careerists that say they will purchase straight away has risen by 3pp to 31% while those saying they are no longer in market has dropped by 6pp from 27% in May to 21% in September.

In many ways this is perhaps not surprising.  Our work tracking consumer movements throughout and since the first lockdown has shown a total inversion of the traditional relationship between affluence and mobility; affluence now buys you the luxury of immobility.

Executive Wealth will have seen their commuting and business travel patterns disrupted and Mature Money are one of the key consumer types to have embraced the “new localism” and as a result are travelling less.

So it is entirely possible that these consumers, having seen a significant drop in their mobility patterns, have changed their minds about the decision to purchase a new car, deciding instead to lengthen their usual 2-3 year purchase cycle after recognising that reduced mileage gives them a good bargain for a balloon payment at the end of a PCP deal. But if that is the case then it will surely only be temporary.  My feeling is that the industry will not have to work too hard to get these key customers back.  They are generally loyal and, when asked, maintain that they will always be reliant on their cars.  But it does indicate that the recovery might still be a little longer in coming.

However, while they are not in the market for new cars are they perhaps instead turning to the second-hand car market?  The industry is reporting record growth in used car prices and anecdotal evidence from the financial services industry suggests that there has been a spike in low-to-medium-value loans for car purchases among more affluent customers. This could reinforce the above suggestion of the PCP buy-out but also the possibility that these groups are buying second hand cars as well.  When surveyed, 43% of in-market Affluent Achievers said they were looking for a second-hand car rather than a new car (compared with 41% overall) and this rises to 50% for Mature Money. And despite the reduction in mobility, with more of the Executive Wealth now working from home and more local shopping trips for Mature Money, a general shift away from public transport means that some more affluent households may have opted to buy a second hand “run-around”.

 

THERE ARE ENCOURAGING SIGNS FROM THE MIDDLE INCOME GROUPS

In more encouraging news for the industry, the Comfortable Communities category look to be a lot more optimistic about their situation than they were in May.  Another key car-buying demographic, the middle-income Groups making up this Category are usually more financially cautious. Earlier on in the pandemic this was certainly born out in the higher proportions who were saying they were no longer in-market but those have now diminished and the proportion stating they will buy as soon as possible has grown consistently over the period.

 

 

The ongoing situation with COVID is having wide-ranging impacts on consumer behaviour and purchasing decisions.  The automotive industry is not alone as this is impacting all sectors of the economy.  The recovery is coming but it might be a longer road than some thought.

The key element here is that not all consumer groups are reacting in the same way. Perhaps now more than ever it is crucial to know more about your customers – understanding who they are, their behaviours, attitudes and motivations and how those things vary by consumer type.

And by knowing where these types are located, you can understand the geographical variations in performance and plan for future changes.  CACI’s wealth of consumer insight, combined with your own customer data, can help unpick these challenges and help you quicken the road to recovery.

For further information on how CACI can support you please feel free to contact:

James Debenham, Principal Consultant, Automotive – jdebenham@caci.co.uk

The ongoing situation with COVID is having wide-ranging impacts on consumer behaviour and purchasing decisions. The automotive industry is not alone as this is impacting all sectors of the economy. The recovery is coming but it might be a longer road than some thought.

The winding road to recovery