Covid-19 has had a significant impact on the Australian economy, with the Roy Morgan Consumer and Business Indexes both recording new lows, and unemployment reaching its highest level for over 20 years. Unsurprisingly, in September, new car sales fell by over 21 percent compared to the same time in 2019. Overall, new car sales have now fallen for 30 consecutive months, but there have been some interesting new trends emerging.
Going into 2020, new car sales were already on a downward trend. A little over one million units were sold in 2019, down 8 percent from the previous year and the lowest volumes delivered since 2011. In the face of drastic change across almost all industries in Australia (and, indeed, the world), what does a post Covid-19 world look like for the automotive industry, and how can car sellers adapt?
The Australian state and federal governments have taken an uncompromising approach to Covid-19, and as such the rate of infections and mortalities in Australia have been lower than in many other countries around the world. After an initial easing of restrictions, on July 9, Melbourne was put back into lockdown with the Victorian Government calling a “state of disaster”.
Inevitably, especially given that Victoria contributes 23 percent of Australia’s GDP, consumer and business confidence have been damaged, and this has not been helped by a ban on Australians leaving the country until mid-December. Small and medium-sized enterprises (SMEs) have taken a massive hit. Employing 44 percent of Australia’s working population and accounting for 57 percent of GDP, it’s no surprise that the impact upon SMEs and employers nationally has seen unemployment rise to 6.8 percent.
The federal government has sought to preserve confidence and jobs, with programmes such as the Coronavirus Small and Medium Enterprises Guarantee Scheme, the JobKeeper Payment scheme that runs until March 28, 2021, and the extension of asset tax write-off programme that provides an instant asset write-off for businesses under specific criteria. However, the situation remains precarious, and many business owners are approaching the situation with caution.
The impact on car sales
Despite the automotive industry somewhat bouncing back since April of this year, the overall numbers do make for grim reading. New car sales in Australia totaled 644,891 from the beginning of the year to September 30, 20.5 percent of the numbers compared to the same period in 2019. Given these figures, it is difficult to see the silver lining. However, there are some reasons to be optimistic:
- Statistics suggest that when confidence in the market returns, so will consumer demand
- Value brands – notably those in China – have done well, responding to a rise in consumers looking for value and affordability. For instance, MG has reported a 61 percent increase in year-to-date (YTD) figures; LDV is up 12 percent; and Great Wall is up 29 percent
- A petrol-electric hybrid vehicle has topped the monthly sales charts for the first time in Australian automotive history. The Toyota RAV4 SUV achieved this position in July and retained it in August, before being surpassed in September by the ever-popular trade utilities from Ford and Toyota. The success of the RAV4 is, however, still promising news for automotive companies offering this type of vehicle
In a world where “the new normal” has become an everyday phrase, it’s interesting to consider that we could be on the cusp of a “new normal” in terms of car buying. A number of car-buying trends have emerged during the pandemic. Some may be short term, but overall we cannot ignore the reality: That there has been a seismic shift in the way people purchase, live and work. It has been suggested that we’ve seen five years of change in six months. The principle certainly rings true in the automotive industry.
Below are five observations that Australian car sellers should take onboard when planning for the future:
- There is demand. Declining confidence in public transport has seen a rise in consumers’ desire for their own personal mode of transportation
- Those consumers who are planning on buying a new car now have indicated that they’re downsizing their purchase plans due to economic uncertainty. This means buyers are looking at cheaper options
- The shift to online. Google has reported a marked increase in searches on buying new and used cars. Buyers are increasingly interested in purchasing cars online or through “click & collect” models. And even if these numbers are small, the importance of a compelling digital presence for dealers has certainly grown
- Affordability. Purchase price and total cost of ownership are increasingly important — the former for used cars, and the latter for alternative fuelled cars
- Environmentalism. Some metrics suggest that the current crisis has shifted behaviors and increased our compassion for one another – changes that car sellers should be aware of going forward
It’s too early to make forecasts in such a volatile marketplace, but it is important to stay positive and to embrace change. The automotive industry has always proven itself to be agile, and this will likely continue to be the case moving forward.