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Avoid stock liquidation, ASE warns dealers, as cashflow remains key

Used cars line up

Dealers will need cashflow to bridge the gap until the Government’s business and employee support funds drop in, however they must resist a fire sale of stock, ASE Global’s chairman Mike Jones has warned.

His advice came as global analysts IHS Markit predicted a year-on-year 10 million light vehicle sales decline (12.2%) worldwide to 78.8m units in 2020 due to the Coronavirus pandemic and national counter-measures.

IHS automotive economist Peter Nagle said If quarantine measures get extended and economic stimulus activities are not sufficient, the decline could be 18% to 20% globally to around 71m units.

Most of the world’s mature economies are suffering “historic declines” causing recession, Nagle said, however IHS forecasts “bounce backs” in 2021.

He pointed out that in China, after eight weeks of factory closures, nine cities are now introducing incentives for people to buy cars, particularly electric vehicles.

“It may take a long time for people to feel comfortable in crowds. It could take two to three years for most economies to return to where they were before,” Nagle said.

“Aversion to public transport after the crisis could help vehicle sales, but there’s limited upsides. That happened after the SARS outbreak.”

Dealers’ problems are more immediate, and Jones said during a webinar with Auto Trader that many of the UK banks and finance houses he’s spoken with are looking to provide extra support for dealers, such as sustaining their stocking loans as normal. Dealers should not be buying more stock at the moment, he said.

His advice was for dealers to maintain or increase dialogue with their banks and funders. “We should be planning for the future, looking at what the cash position will be, to tell them about potential problems and have plans A, B and C ready.”

He said dealers can be building a pipeline, to get arranged for a fast start when showrooms open again. Historically, after other crises, new car sales and service bookings once recovery begins can lag slightly but used car sales build quickly, he said.

His advice to all dealers was to “steer clear” from cashing out of stock if possible.

“The one thing people shouldn’t be doing is panic selling. It’s very difficult from a cashflow point of view, but there is no market out there from a demand point of view, so if people are looking to liquidate stock it’s a phenomenally difficult time to do that.”

Jones predicted a 40% fall in March new car registrations. He urged dealers to be cautious about their approaches in the weeks ahead, and not be over-eager to begin handovers.

“Timing is everything. Everybody is very keen to start work again and generate income, but we need to make sure we read the mood.

"If people are seen to be flouting the general ‘we’re in it all together and don’t put anybody at risk’ operating processes we’re working under at the moment that can tarnish the reputation in the medium term.”

Auto Trader's data and insight director Richard Walker told the webinar audience that analysis shows the UK’s car classified sites have experienced a 48% year-on-year drop in visits during the week ending March 27.

However Auto Trader is still getting 800,000 to 900,000 daily users, so there are still consumers looking for cars, and it is still generating 7,000 leads to dealers daily.

“It seems like the consideration is still there. It’s the timing that has changed.

"People are doing things that gets them ready for when we get back to a more normal operating environment. Retailers need to be ready.”

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