Today, our Director of Automotive Industry and Economic Analysis, George Augustaitis, takes a look at how consumer sentiment is trending among CarGurus shoppers.
Before the onset of the COVID-19 pandemic, UK consumer confidence (as measured by the GfK UK Consumer Confidence Index) was trending upward. As of last week, it had dropped to -34, signaling that consumers are feeling significantly less optimistic about their financial security, their job security, their ability to find new employment if made redundant, and the economy overall.
The decline in consumer confidence is troubling but not surprising, as it is typical in a recession. However, the rapid decline in vacancies in the job market that we’ve seen due to COVID-19 has likely contributed further. According to the Recruitment and Employment Confederation (REC) and KPMG, the vacancies index fell to 47.8 in March, the first fall below the no-change 50 level since September 2009.
All of this means that consumers right now are less likely to make a large ticket purchase, as evidenced by the 52 pt. decline in the Major Purchase Index. When a consumer does not feel confident, they are less likely to make a large purchase like a vehicle, unless they need to. We see this in the decline in UK vehicle registrations, which fell 44% in March 2020 and 97.3% in April 2020, according to the Society of Motor Manufacturers (SMMT).
A view to recovery
Even with these somber economic indicators, it is important to remember that, as with past recessions, this too will pass. The economy will recover.
In fact, our own polling of CarGurus site visitors suggests that despite the current climate, the outlook to the future is improving. Since the onset of the COVID-19 lockdowns, we’ve been asking consumers the following question: ‘By September, how do you expect to feel about the economy overall?’
While 50% of consumers indicated they will feel worse or much worse about the economy, the number of people with a positive outlook increased between the March and April polls. In March, 31% of respondents indicated feeling somewhat better or much better by September, whereas in April 38% indicated feeling somewhat better or much better about the economy by September.
Economic recovery won’t happen overnight…
COVID-19 is likely to have a long-term impact on consumers’ mindsets, and fears created by the global pandemic won’t disappear any time soon. Until there’s a vaccine, concerns about exposure will limit people’s willingness to be in large crowds and social distancing measures will continue. Additionally, possible interruptions in the recovery curve would prevent the unemployment rate from returning to pre-COVID-19 levels, resulting in a slower increase in consumer confidence. These effects will have a ripple effect across sectors from hospitality to automotive and more.
However, the UK is issuing grants to companies covering up to 80% of workers’ salaries up to £2,500 per month for workers placed on furlough. As a result, when the COVID-19 restrictions end, workers in the UK may be less impacted.
What does this mean for the automotive sector?
For many consumers, a vehicle is a necessity. During the COVID-19 pandemic, there may not be a typically large number of consumers in the market shopping for vehicles, but there are consumers still in the market. However, those consumers who are shopping for a vehicle may look to used vehicles as opposed to the new car market.
The reason is simple: consumers who need to replace their vehicle, but are uncertain of the economy and nervous about their job security, may feel more confident buying a slightly older, more affordable vehicle.
What dealers can do during the COVID-19 pandemic
Consumers are still searching for vehicles. Dealers can use this time to build relationships with consumers and connect digitally and over the phone. As the economy recovers and consumer confidence returns to higher levels, those dealers who built relationships with shoppers may see an early windfall as consumers come back to the market. For more information, check out our post around innovative approaches to connect with customers.