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COVID-19 and EVs to keep cashflow the heart of car retail’s 2021 strategies

Alison Ashley, RSM head of motor retail

A Brexit deal may have been done but with COVID-19 and the electric vehicle (EV) agenda at the heart of car retail’s challenges in 2021, Alison Ashley, RSM’s head of motor retail, has highlighted her key predictions for the years ahead.

Writing her guest opinion post just days after the results of the AM Outlook 2021 Survey were published in the February edition of AM Magazine, and subsequently here on AM Online, she has suggested cash preservation was set to remain a key consideration.

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Read on to discover what Alison Ashley sees as the seven key areas of focus for car dealers this year.

Cash burn will gather pace

 A key challenge in 2021, beyond those encountered during 2020, will be preserving cashflow.

The various support and cost reduction measures brought into play soon after the first lockdown meant that dealers were often in a better cashflow position when compared to previous years.

Deferral of VAT, rates discounts and furlough claims helped boost cash reserves; and borrowing facilities have been more readily extended, albeit largely unutilised.

Buoyant trading since June and cost reduction in the ever-difficult winter months will help to rebalance the books for the 2020 calendar year as a whole.

Whilst government support will continue to be available for at least the first quarter of 2021, the cash burn for dealers will gather pace and will prove a greater challenge for dealers over and above that experienced in 2020.

Take a rational approach

COVID-enforced showroom closures during 2020 saw UK new car registrations drop by 29.4% to 1.63 million in the toughest year for new market volumes since 1992.

With early 2021 already heavily impacted by extended and enhanced lockdown restrictions, the SMMT’s predicted bounce back to over two million units now seems unlikely.

However, the silver lining for a number of dealers through 2020 was to emerge on the other side stronger, more streamlined and adept at transacting remotely.

In a tough and quickly evolving market it becomes a case of survival of the fittest and that goes for both dealers and manufacturers.

COVID has accelerated the rationalisation of UK networks, and brought about the exit and merger of manufacturers.

The long-debated agency reward model is also tipped to become more widely used to simplify reward across networks.

From a dealer perspective, there is still an appetite for growth at the top end of the market; and seemingly ample war chests to allow for it.

Brexit bumps in the road

The industry breathed a collective sigh of relief at the final hour trade deal agreed between the UK and the European Union which should now allow for tariff-free trade of cars and car parts; but the supply of vehicles and parts continues to face headwinds.

With more than half of UK production exported to the EU; and UK production relying on the import of the majority of components from the EU, it is probably safe to assume that there will still be some Brexit-led disruption for automotive supply chains.  

Pre-empting the pipeline will be key

Passenger car production across manufacturers’ global markets was down by around a quarter during 2020.

Inevitably this will have a significant overhang into 2021 and will see dealers impacted by the availability or lack of certain vehicle models and engine variants.

Pre-empting the pipeline of vehicles and matching that with timely marketing and incentives to attract customers to the right product at the right time will be key to 2021 manufacturer market share.

Whilst controlling stock of well-priced quality used vehicles will be the balancing act within the control of dealers.   

The green agenda

The Green policy agenda will heavily influence market share. Last year saw the acceleration of the end of sale date for petrol and diesel cars to 2030; and consumer spending responded as 2020 was the best-ever year for electric cars sales. This trend looks set to continue in 2021. 

Change in working practice

The impact of COVID has impacted the working practices for many; and an increase in home working is likely to be a permanent change and coupled with a switch from public transport to private vehicle commuting will no doubt impact consumers buying decisions throughout the year.

In any case, first and last mile mobility solutions are rapidly changing the way people move around.

Curbs on consumer spending

We are yet to see the full impact of the economic downturn on consumer spending which has been temporarily masked to a large extent by government support such as the furlough scheme.

Premium brand consumers are probably less likely to be impacted economically by the effects of the epidemic in the coming months, so it may be volume brands that bear the brunt of reduced disposable income throughout 2021.   

Author: Alison Ashley, RSM head of motor retail

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