The outbreak of COVID-19 wreaked havoc on the UK automotive sector, as bricks-and-mortar dealerships were closed to the public at the end of March 2020 and production in the Motor Vehicle Manufacturing industry was temporarily paused. This contributed to a drop in car manufacturing output in April 2020.
Domestic car production fell by 29.3% in 2020, according to the Society of Motor Manufacturers and Traders (SMMT).
Bricks-and-mortar dealerships remained closed for much of 2020-21, leading to a fall in car sales. However, the stay-at-home order implemented to curb the spread of the virus resulted in a surge in online shopping, including for vehicles.
Online purchases as a percentage of retail sales peaked at 36.3% in January 2021, up from 20.2% in January 2020.
Online sales of used vehicles in particular climbed during the pandemic, which is an unusual trend in the sector because of the expensive nature of vehicles. Traditional car dealers in the New and Light Motor Vehicle Dealers industry switched their focus to generating sales through e-commerce websites; this trend is expected to continue in the coming years.
An estimated 47.5% of online car and automotive goods purchases are made by people aged between 18 and 34 years.
Prior to the pandemic, the majority of customers gathered information on the make, model and mileage of vehicles online before completing a purchase at a dealership. The pandemic has led to more customers feeling comfortable making purchases online. In the coming years, more people 35 years old and over are expected to be willing to make online purchases, partly due to changing consumer preferences and the accelerated trend towards online shopping.
Market disruptors
With more customers purchasing vehicles without stepping into a dealership, new firms have been encouraged into the Online Car Dealers and Automotive Goods Retailers industry. Online showrooms have become more commonplace in the market after dealerships were kept closed during the COVID-19 lockdown periods. Through e-commerce stores, customers can select a vehicle, arrange finance, pay a deposit with future payments as low as £300 per month and have vehicles delivered within 48 hours.
Online-only firm Cazoo has capitalised on this growing trend. Incorporated in 2018, the company has since reported strong revenue growth, supported by an aggressive marketing strategy. Cazoo operates an end-to-end digital platform that enables customers to browse and buy a wide range of vehicle models and arrange finance, with vehicles delivered within a 48-hour period. The number of units sold by the company rose to over 10,000 over the three months through March 2021 and its revenue is reported to have reached £150 million in 2020, up from £1.2 million in 2019.
In a survey by CarGurus in November 2020, 66% of customers stated that they would be willing to purchase vehicles online, up from 41% prior to the pandemic.
Traditional dealerships such as Arnold Clark and Pendragon plc in the Used Car and Light Motor Vehicle Dealers industry have opened online stores to better meet changing consumer preference. These firms have the infrastructure and access to investment in order to dominate the market because of strong brand recognition and competitive prices.
Electric drive
Alternatively fuelled vehicles (AFVs) have captured a rising share of the traditional and online market.
According to SMMT data, transactions of used AFVs expanded by 37.9% over the three months through March 2021, compared with the first quarter of 2020, which is a notable increase in a depressed market.
Used AFV sales in the first quarter of 2021:
- Hybrid electric vehicle transactions rose by 16.6% year on year.
- Plug-in hybrid electric vehicle sales grew by 32.1% year on year.
- Battery electric vehicle sales rose by 48.3% year on year to reach 6,564 units.
Despite the success of these vehicles, they only account for approximately 5% of used car sales, presenting opportunities for growth in the coming years. Ahead of the 2030 ban on the sale of new petrol and diesel vehicles, demand for AFVs is expected to rise, with a higher proportion of vehicles purchased through online stores.
Traditional showrooms will have to adapt their businesses in a changing market in order to maintain market share.
These firms will have to provide a digital end-to-end service and stock more AFVs as the population becomes more environmentally conscious. Finance offerings on websites are generally more competitive, which is likely to encourage more customers to purchase vehicles online rather than in showrooms. As a result, traditional retailers must offer better finance options and product offerings in order to compete.
For more information on any of the UK’s 500+ industries, log on to www.ibisworld.com, or follow IBISWorld on LinkedIn and IBISWorldUK on Twitter.
