Which auto segments are prospering during Covid-19?

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Dealerships are looking to pre-owned vehicles to shore up automotive industry turnover during the Covid-19 pandemic, with used personal cars outperforming new unit sales in a variety of emerging and developed markets. 

This comes as consumers seek to adhere to social-distancing guidelines and avoid public transport, while making the most of their diminished purchasing power amid global economic headwinds.

Second-hand sales

Automotive players in Turkey expect up to 8m used car sales in 2020 as a pre-pandemic shortage of new vehicles is exacerbated by supply chain disruptions attributed to the virus. Some 2.1m cars and light commercial vehicles were sold in the first quarter of the year, putting the market on a path to surpass the record 7.6m units sold in 2019.

With many residents of major Turkish cities moving away from public transport in favour of private cars, second-hand vehicle prices increased by nearly 10% between mid-April and mid-May.

Meanwhile, a July survey by classified advertisements website OLX Indonesia found that 54% of respondents in South-east Asia's largest economy were considering buying a used vehicle over a new one. 

Elsewhere, pre-owned vehicle sales fell by 38% year-on-year (y-o-y) in April as lockdowns were imposed across the US, but efforts to reopen the economy in June saw sales of used cars exceed pre-pandemic forecasts by 17%, according to automotive research firm JD Power.

Across the Atlantic, used car sales were similarly down in Germany, France, Italy and Spain; however, new vehicle purchases recorded steeper declines. In April, for example, Germany processed 44% fewer used car registrations y-o-y, while new car registrations fell by 61% over the same period.

Digital check-out lanes

While consumer trends early in the year indicate a shift towards pre-owned vehicles, many dealers and automakers are actively developing their online sales channels and other digital tools to increase new unit purchases. Dealers had previously been hesitant to sell online for fear that it would reduce profitability.

AutoNation, the largest car retailer in the US, recently invested in expanding its online offerings and introduced a store-to-door delivery service, eliminating the need for customers to visit a showroom. “For digital, this whole disruptive period... is an inflection point from which there is no turning back,” Mike Jackson, executive chairman and CEO of AutoNation, told investors in May. 

Reflecting a larger shift in retail, some companies have reported accelerated online sales during the pandemic. Group 1 Automotive of the US saw online-generated sales almost triple their proportion of overall sales, rising to 7.3% in April from 2.5% before the pandemic. At the same time, the share of vehicle deliveries increased four-fold from 5% to 20%.

Similarly, US-based Carvana, an online-only car seller, saw a 25% y-o-y rise in vehicle sales in the second quarter of 2020, with revenue expanding by 13% to nearly $1.2bn. Investors have taken note: the company’s share price on the New York Stock Exchange rose from around $30 in mid-March – when Covid-19-related mobility restrictions were first introduced around the country – to around $215 at the close of August, for growth of 616.7%.  

Future growth prospects

The resurgent popularity of pre-owned cars offers opportunities for new and established players to gain digital market share. However, with supply lines disrupted and overall demand dampened, the industry’s weaker performance has continued into the second half of 2020.

Worldwide passenger vehicle sales fell by around 7% y-o-y in July, according to global industry research firm Counterpoint, even as some countries registered month-on-month recoveries as economies reopened. In China, sales were up 16% y-o-y, though turnover remained under pressure in the US, Europe, India and Japan.

As OBG outlined in June, the decline in auto sales was primarily driven by the economic impact of the pandemic, as a sharp rise in unemployment globally led to a considerable drop in consumer spending.

This trend was compounded by supply chain lags: manufacturers could not source raw materials and parts from shuttered production facilities in China and other hard-hit countries.  

However, past health crises have demonstrated that such initial disruptions can boost vehicle sales over time as economies recover. For instance, during the 2002-03 SARS outbreak in China, the fear of infection led many to avoid public transport and resulted in increased vehicle demand.

While the economic consequences of the Covid-19 pandemic are expected to negatively affect the auto industry in the near term, the shift towards used cars and efforts to digitalise sales and services are providing dealers and manufacturers an opportunity to adapt to changing retail dynamics.

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