A long-term recession is both unlikely and unnecessary if businesses ignore the "hard-line approach of financial directors", according to MotorVise Automotive's Fraser Brown.
Brown has warned that businesses are in danger of creating a self-inflicted recession unless they adopt a different approach to dealing with the challenges of the coronavirus pandemic.
He said: “The thing that will lead us into a totally unnecessary recession is if we allow the financial directors and accountants to run our businesses as if this was a normal downturn by slashing marketing budgets and cutting staff.
“If we follow this approach, then we engineer not only a recession but a depression of our own making.”
Brown argues that during a normal recession, financial directors cut hard and fast to maintain profits and minimise losses.
He added: “Downturns are normally caused by fundamental economic problems, but this was triggered by a pandemic and demands a different response if we are to avoid a recession created by a lack of consumer confidence.”
Brown said that along with other sectors, car dealerships had suffered an immediate cessation of revenue when lockdown was imposed in March.
However, with government financial support, including the Coronavirus Businesses Interruption Loan Scheme (CBILS) and bounce back loans, many have found themselves in a better cash position than normal once restrictions eased.
The car retail sector is divided over suggestions by the Bank of England’s chief economist that the UK is already on track for a V-shaped recovery from the COVID-19 coronavirus pandemic.
Meanwhile, many customers have also ended up better off by either working from home or being furloughed, saving money on commuting and the lack of normal shopping and leisure opportunities.
Brown said: “Not everyone is running out of cash. The economy was temporarily halted and was restarted and sustained using government funds – which means consumer demand will remain and a long-term recession is neither likely nor necessary.”
He added that this is borne out by those car dealerships who enjoyed a quick return to profit after restarting full sales and marketing activities and those who followed an accountant-led approach and are now experiencing losses.
“When a business is closed it is right to cut costs, but when it reopens it must abandon spending restraints, as furloughed staff lead to reduced revenues and a lack of marketing spend depresses demand – leading to a further downward spiral of cost cutting," he said.
“The danger is that we self-perpetuate a recession that is not based on fundamental economic issues. The economy is not short of cash and the only way there will be a major issue with unemployment is if we begin laying people off before knowing the actual market demand for each of our business products and services.
“I urge all business to fully re-open whenever regulations allow and to offer a full service and watch clients return. Let’s hold our nerve, invest in marketing, drive demand and let the economy recover before being tempted to slash fundamentally sound enterprises.”
MotorVise Automotive has recently partnered with Drive Assured and The Compliance Company to form the Motor Alliance – a new business aiming to drive car dealers’ profitability.