What Car? Insights: Six-month update on the UK automotive market

This is the latest report in a series of weekly updates for industry colleagues from Rachael Prasher, managing director of What Car? and Haymarket Automotive. It uses data from 39,957 survey responses collected weekly between January and June 2021.

This week we are publishing our first six-month report on the UK automotive market, made up of nearly 40,000 responses from in-market car buyers over the past six months. Our weekly industry studies have looked at the various metrics in the market, from purchase timeframes and budgets to expectations on delivery times, tracking them over the first half of 2021 to identify key industry trends.

The last six months have seen two clear events impact the market. The first was the easing of lockdown restrictions in April; this allowed dealerships to fully open across the UK in May and prompted a rise in demand for new and used cars. The second is the continuing impact from the global semiconductor or microchip shortage, which is impacting both the new and used car market: new cars through longer lead times and changes to vehicle specifications, and used cars due to a substitution effect caused by new car buyers moving to the used market.

Buyer Timeframes

A key measure of demand in the market is how soon in-market buyers are looking to purchase their next car. Our research shows the clear effect that the easing of lockdown restrictions has had on both new and used buyers. For new buyers the third lockdown had a clear impact, with a rise in the share of buyers pushing back their car purchase and expecting to buy in six months or more. Consequently, since the market reopened in May there has been a clear increase in the share of buyers bringing forward their purchase.

A crucial difference between the third national lockdown, which was announced in January, and the first lockdown in March 2020 has been the rapid adoption of online buying. In April 2020, just 5% of new car buyers were considering buying within four weeks, due to dealership closures, but in January this year 17% of new car buyers were still looking to buy within four weeks, despite showrooms being closed across the country.

Our research in June found that 42% of in-market buyers remain comfortable with the idea of buying their next car online, with 9% telling What Car? they expect to purchase their next car entirely online. The research also found that 40% would skip a visit to a showroom if they could have a live virtual tour of the car they’re interested in from the comfort of their own home.

For used buyers lockdowns have had less of an impact on purchase timings, but from May onwards demand in the used market has soared, in part driven by dealerships reopening but also due to the growing semiconductor shortage affecting the new car market.

Our research of 1425 in-market used buyers in June found that nearly a third (29%) had originally been in the market for a new car, but they have switched their attentions to the used market in search of better vehicle availability and value.

Though the effects of Covid-19 have now been mitigated by the growing online retail capability within the sector and the reopening of showrooms, the microchip shortage poses a new and potentially greater threat to the market.

Budget & Vehicle Choice

While buyer timeframes were impacted by the pandemic, budgets have been less affected over the first six months of the year. In March 2021, our research found 79% of buyers saying that Covid-19 has not impacted how much they are looking to spend on their car. While 15% said they will now spend less, 6% stated they will actually spend more.

As is to be expected, used buyers stated significantly lower budgets than new buyers, with most new car buyers set to spend between £20,000 and £30,000 on their next car, and used buyers between £5000 and £10,000.

The research also looked at the types of cars buyers are considering, with family SUVs, small SUVs, large SUVs and small cars most popular among both new and used buyers, again representing the overall trend in the marketplace.

Waiting Times & Alternatives

As with budgets, there’s a clear difference between the expected waiting and delivery times between new and used buyers, with new buyers more willing to wait longer for their next car to arrive. Although the microchip shortage has impacted vehicle lead times it has not resulted in more leniency from new buyers, with the majority still expecting to receive their next vehicle within eight weeks.

The effects of the microchip shortage – and the impatience of new car buyers – is evident when we ask what new buyers would do if their delivery expectations cannot be met. From April onwards, an increasing number of new buyers are considering switching to the nearly new or used market, or buying from stock – behaviour we’ve observed in the industry over recent weeks.

This has also had a small impact on brand loyalty, as new car buyers are now slightly more likely to swap to another maker with availability.

Key lessons

The first six months of the year have seen the industry re-enter and emerge from a third lockdown, but better prepared than before. Unlike in the first lockdown, online retail helped businesses tick over during showroom closures and provided a viable alternative for desperate buyers. Online buying is expected to remain a vital part of the sector, even as showrooms remain open.

With the recovery underway from Covid, the industry now needs to tackle the ongoing microchip shortage, which is already prompting new buyers to switch to the used market, inflating used prices and diminishing vehicle stocks.

The concern for the time being is that there is no easy fix in sight for the shortage, as supply constraints are expected to continue for several months. How the industry responds to this issue will be a key factor in determining the smoothness of the road to recovery over the next six months.