Dealers shift down a gear as Brexit takes the shine off new car market

‘Had Brexit gone the other way, we’d be looking at a record car market this year,” says Andy Bruce, chief executive of Lookers, the UK’s biggest dealership.

But it didn’t, and Bruce, who voted Remain, is instead faced with a car industry in turmoil. Anxious Britons have delayed buying new motors, and manufacturers, who rely on moving parts back and forth across the Channel, have slammed the brakes on investment, raising the prospect of thousands of job losses.

A year-long slump in new-car sales ended in April, and Bruce hopes the market has bottomed out. “I don’t think there was anything to read into it other than Brexit,” he says. “There is no systemic downturn. The [new car] market was 2.7 million at its peak, and I believe we’d be heading for 3 million had Brexit gone the other way.”

Investors in the sector ran for the hills in the wake of the referendum: Lookers’ market value halved in the panicked days after the vote. Its shares have since rallied but hedge funds still scent blood in the water and are shorting listed car dealers.

At last week’s annual summit of the Society of Motor Manufacturers and Traders (SMMT), leaders lined up to warn of the perils of Brexit uncertainty. “For this industry, the softer the Brexit, the better,” Bruce says.

Lookers’ fate is not wedded to that of domestic carmakers, because the lion’s share of the £4.7bn of cars it sold last year were imported. But if Britain crashes out of the EU, it could face a bureaucratic nightmare.

“All the Mercedes we sell come in from outside,” says Bruce, “as do the Volkswagens and Renaults. “It would be a real problem if we had to go through an onerous import process. You can imagine what Dover and various ports in northern Europe would look like. We can’t prepare for that; we just have to wait and see.”

The Brexit currency shock, which pushed up grocery prices, also inflated car prices and a no-deal Brexit is likely to spell yet higher prices and delays for consumers, who typically wait 12 weeks for a new car. “You can imagine it would add a huge amount of complexity – and cost – to getting the cars to customers,” says Bruce.

The weird thing, according to Bruce, is that the rise of personal contract purchase (PCP) loans means Britons no longer treat buying a new car with the same reverence as other big purchases, such as a kitchen.

“Cars are not classed as big ticket items because of PCP,” he says. “People don’t really know the price of a new car any more. Everything is communicated in how much down [in a deposit] and how much a month. It has become a bit like a mobile phone.”

Lookers’ glitzy Land Rover dealership, by the A40 in west London, feels a million miles from the car lots of old. It has white leather sofas, widescreen TVs and baristas serving frothy cappuccinos. A salesman says Range Rovers that cost more than your average house deposit sell “like sweets”. “This could be a Four Seasons hotel with cars,” says Bruce. “We’re trying to soften the whole thing and make it a brand experience.”

Like other retailers, car dealers are having to adapt to an internet age. Accountant KPMG forecasts that up to half the UK’s 4,200 dealerships could close by 2025. The industry is also adjusting to big market shifts as collapsing diesel sales are offset by growth in new plug-in models.

The tough market conditions have been compounded by the fallout from scandals such as “dieselgate” and more recently the recall of 300,000 BMWs, and Vauxhall recently announced plans to axe a third of its UK dealer network. Bruce predicts that by 2025, a quarter of new cars will be electric or hybrid, and diesels’ market share will have halved to 15%.

“People used to drive round dealerships, do test drives and haggle over part-exchange, but all that happens online now,” says Bruce. “The average number of visits per sale is down from four or five to 1.5.”

By next year, shoppers will be able to buy a car from Lookers’ website and have it dropped to their door without setting foot in a showroom, but Bruce believes most customers will still want some old-fashioned service between factory gate and driveway.

He insists there is no prospect of car dealerships becoming extinct. “You can’t buy a car from Amazon. If one of the car manufacturers did decide to go through Amazon, they would be taking a huge risk. It would fly in the face of what consumers want.”

But then travel agents, record shops, insurance brokers, mattress retailers, fashion boutiques and even banks used to think exactly that.


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