How changing consumer behaviours are guiding dealer business plans

Philip Nothard, customer insight and strategy director at Cox Automotive UK, explores why dealers are adjusting their business plans in the wake of changing consumer behaviours.

Lockdown has allowed many people to hit the pause button and take a step back from the hustle and bustle of modern-day life. Of course for many essential workers whose jobs have continued as close to normal as possible, and parents juggling work and kids this isn’t the case, but for those without such commitments and who are still working from home or on furlough-supported leave, one would be forgiven for forgetting how hectic the average day could be.

As a result, the pandemic has caused many consumer behaviours to change, or accelerated those already taking place. Automotive retail is not exempt from this shift. Three-quarters of dealers responding to our recent sentiment survey believe that COVID-19 will result in a fundamental change to how consumers will both choose and use their cars in the short to medium term, whilst 35% imagine it will lead to permanent change. Changing buyer behaviours usually means adjustments to dealers’ business plans.

It’s easy to see how things could change. The increase in home working and health concerns regarding public transport and physical retail has left many to re-assess their transport choices in three ways.

Firstly, how consumers shop. Lockdown has put a greater-than-normal emphasis on online and home-delivery services, mostly with great success. It’s likely that at least in the short term, consumers could prefer to purchase their next car online, or at least progress as much of the journey as possible from their laptop or mobile device. With Auto Trader repeatedly announcing record site visits and increased retail leads through their online platform, it certainly seems that way.

Sophisticated e-commerce platforms, better imagery, video walkarounds and more data are increasingly making people more comfortable with purchasing big-ticket items from the comfort of their own home. In some cases, a buyer can find their next car, part-ex their current one, then complete the handover, all without having to visit a dealership. The convenience alone is enough to make this an attractive proposition, let alone the safety it offers during a pandemic. As a result, car retailers that already had fully fit-for-purpose e-commerce offerings stand to benefit more than those that have been slow out of the gates.

Secondly, the way many choose to get about has changed. 76% of those we surveyed believe that there will be a shift towards owning a vehicle as an alternative to public transport in the short and medium-term. With health concerns as they currently are and capacity issues due to social distancing measures, this comes as no surprise. People will be keen to do everything they can to keep themselves safe and prevent a second wave of the virus.

Not everyone will want or be able to buy new, however. Some dealers are looking to adjust their stock profiles to cater for an increased demand in used cars with 40% expecting a preference to used over new in the current market. Data and insight are crucial in understanding local trends and allowing dealers to stock the right vehicles for their market with the highest potential margin.

Caution towards public transport won’t last forever of course. Over time, a decrease in used car demand won’t come as a surprise, but dealers need to be ready to capitalise on this trend in the meantime.

Thirdly, how consumers finance their car purchases. 42% of dealers believe that there will be caution towards finance in the short and medium-term. This comes as no surprise when income in many households has been reduced whilst others are being more thoughtful towards a currently uncertain future by saving more. How dealers react to this is yet to be seen. Some will adjust stock profiles downwards in the interim, whilst others will hold out in faith that normal attitudes towards finance will return.

Don’t forget that before the pandemic we were seeing around 80% PCP penetration in the new car market and over 50% in used. Even if there is a dip in financing initially, the trend was already clear, and I believe we’ll be seeing normal attitudes towards financing return.

Looking at the overall market, there is cause for optimism. Auto Trader has reported daily visits of up to 2.1 million, with a third of consumers surveyed saying will purchase a car in the next month, whilst in the wholesale market, Dealer Auction is reporting a 135% month-on-month increase in auction numbers. It remains to be seen if this is just the result of pent up demand from April and May, but for now, there is demand, which means that there is business to be had.

Business planning will shift in the short term, but looking at the bigger picture, the pandemic has simply accelerated the direction we were already heading in. A complete e-commerce experience is the way of the future, with many dealers already there, whilst changing attitudes towards finance and the type of car purchased are likely to be short-term. Even when some semblance of pre-lockdown normality returns, the direction of consumer movement towards e-commerce and digital platforms was always coming and car retailers need to prepare.