David Brown, a senior manager at KPMG MIS, told GoAutoNews Premium that the fallout from the pandemic will see many people quitting or losing their current car and looking for good basic used cars preferably with factory warranty remaining.
He said the fallout could also potentially drive an increased focus on people subscribing to used cars to tide them over with transport until they can assess their longer-term financial outlook.
“There is going to be an increase in people selling cars to replenish strained household budgets and they will be replacing their cars with a lower-cost older car to stay mobile.
“There are a lot of people who have been through this situation before where they have had a company car and through redundancies or relocation have had to buy another car until such time they get through to their next role that may include another company car.
“But I think this time everyone is conscious that there will probably be an extended period of unemployment for a lot of these people so the idea of running out with your redundancy pay or your severance package and buying a new car is out of the question.
David Brown
“They will be looking at low-priced, affordable, reliable transport to keep them going until such time as they get the next job with the company car,” Mr Brown said.
“The car allowance is another interesting one. A lot of companies provide a car allowance and a lot of people have done as they have pleased with that car allowance. But if that allowance has been removed, they are also back to reliable and more affordable transport to keep the kids going to school, weekend sport when it returns and getting to the job interviews and those sorts of things.
“From the industry’s point of view, that is two transactions generated. The company needs to dispose of the returned company car and the employee needs to find a lower-priced car.
“So dealers should keep in mind that each one of those redundancies could be generating two vehicle transactions.
“Those people made redundant who own their vehicles could well be offering their cars for sale through dealer sell-my-car features on dealer websites,” he said. “So dealers should be making it easy for people to offer their car to the dealership and make it clear that the dealership is in the business of buying their car and finding a lower-priced replacement.
“Dealers need to start going back at least a full 12 months and look at every appraisal, wether they bought a car from the dealership or not, and start asking the question: did they end up disposing of their used car, do they still have it and are they interesting in letting go of that car. (See AutoPlay: Accumulate ‘virtual stock’ in this issue).
“They should also look in the same way at every service customer who has been in,” Mr Brown said.
He said dealers are at a point now where more than ever they need to start shopping for the right stock.
“A lot of dealers have some of the best databases and they just need to start digging into them and start accessing and going backwards to start mining cars from their existing customer base.”
Supply from OEMs is mixed
Mr Brown said that dealers should by now have a handle of how much new car stock will be available from their OEMs.
“While many factories have been closed, and are only just resuming production, stock availability later this year will depend on the priority the relatively small Australian right-hand drive orders are given.
“A lot depends on how much stock was being held in Australia and how successfully stock was cleared during March, April and May.
He said dealers who will be short of stock later this year will find themselves increasingly handling good used cars.
“In a lot of cases it will depend on the individual circumstances of the brand.
Our discussions with the different brands reveal quite different stock levels going into this pandemic. Some of them were quite heavily stocked going in so they are trading through with that stock okay.
“But some did not have a lot of stock and with shipping restrictions have found themselves asking the question on whether there will be enough stock at the other side of this pandemic. They will know which brands they are.
“Another factor will be the pace at which the other right-hand drive markets start to gear up again. Will that mean Australia will be burdened with excess stock in some cases or alternatively with not enough stock at the back end of the year.
“You look at Japan which was hit quite hard. The UK was hit extremely hard and normality will not come back there for quite a lot longer than what happens here. As a right-hand drive market, will we be in line to be lumbered with some of that excess stock that was still around or maybe was planned to be produced?”
Factory warranties remain in older cars
Mr Brown said there are dealers now who are looking for good used cars in the $9000 to $15,000 price range to cater to people who have lost their company car and need good basis transport for the time being.
“If you can get a $9000 to $15,000 car which is hitting that four to five years it is probably only just post the factory warranty or getting toward the end of an extended or possibly longer warranty some of the Asian makes have, if someone finds themselves purchasing into one of those as a used car they have peace-of-mind that it should get you reliably through the next two-to-three years until they are able to upgrade to a newer or new car. So that is a sweet spot to be looking at.
“Dealers at a time like this must also be focussing on price-per-week. Household finances are being challenged. People will be on a very strict budget and have a figure that they can afford a week to get their transport covered. Dealers need to take that into account when pricing their cars. So a price-per-week advertised front and centre is more important than advertising a total value.”
Mr Brown said dealers should especially look out for used cars with long factory warranties left in them.
“A four-year old Kia still has three years of factory warranty remaining which is very appealing for people entering that area of the used car market for the first time. Others have factory warranty remaining depending on the initial period when the car was purchased.
“And a lot of brands went through periods where extended warrantied were included as part of a sales campaign so it would pay a dealer to check as they are approaching a customer to trade a car on what is left of a warranty might apply to that particular vehicle; whether there is still a factory-based warranty still attached to the car.
“That would certainly change the value of it pushing out the other side.”
Boost for subscription sales
Mr Brown said that another new dynamic for dealers to watch is people who are cashing up their current car or have had to have handed back a company car were now looking at subscribing to a good used car to stay mobile but with just one month’s notice to quit the car rather than committing to a three-year purchase deal.
“They are keeping themselves mobile while not committing to an extra asset burden in their life and having to pay stamp duty and all the other up-front fees on buying a fresh car nor to they have the additional burden of repairs and maintenance, insurance and registration,” he said
This marks a shift from ‘this is the car I must have’ to ‘I am now seeking mobility as long as it is safe and reliable and can get me from A to B’.
“We can see that people’s mindsets are starting to shift as their financial situations change and they are no longer in a position where they can stretch to the premium car they aspired to. They are now buying mobility as a necessity because of the situation that everyone has been placed in with this pandemic.
“We don’t see subscriptions taking over an entire market but we do see it opening up a new and important sales avenue as an additional channel for dealers and customers to tap into mobility. So it is adding a layer without replacing or taking over a layer at the moment,” Mr Brown said.
By John Mellor
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