Level 4 Lockdown & Car Dealerships

Why should car dealership automotive retail be open under level 4 lockdown?

Currently, level 4 lockdown does not allow automotive retail sales (motor vehicle sales through car dealerships). Car dealerships sales are currently classified under level 3.

Automotive manufacture is not sustainable without car dealership retail

If OEM’s open up plants and begin assembling cars without retail sales outlets being open in the form of car dealerships under COVID-19 social distancing. A build-up of supply in not being able to get vehicles to the consumer will result in parking lots of cars standing. OEM manufacturers would surely not invest capital in new cars in a world where the cars made would merely stand in parking lots waiting for car dealerships to open their retail doors.

AutoTrader is the largest automotive marketplace in South Africa and serves as a sound automotive economic proxy

AutoTrader is a sound proxy for consumer vehicle demand, supply and pricing in the South African economy. Consumers conduct over 35 million vehicle searches per month on the platform, helping to generate over R12bn of revenue to South African car dealerships per month.

Reasons Car Dealerships should be able to retail cars NOW

The used car dealership market dwarfs the new car market by a factor of over 2:1. The South African economy is extremely dependant on all car dealerships, not only new car dealerships.

Strong evidence using AutoTrader’s search data suggests that the Automotive retail sector will be one of the biggest stimuli to the South African economy, that’s if car dealerships are allowed to open by moving them from level 3 to level 4 lockdown:

• Demand for vehicles (search activity and enquiries to retailers) by buyers of vehicles reduced to its lowest point on the day of lockdown.
• Since lockdown car and commercial vehicle demand, while not fully, has materially recovered.
• This indicates that should car dealerships be allowed to trade, the South African economy will be stimulated as consumers are ready and active NOW.
• Post President Cyril Ramaphosa’s address last week Thursday 23 April 2020, AutoTrader has seen the biggest recovery in consumer demand since lockdown.
• Search demand for vehicles hit its highest level on 26 April 2020 since 17 February 2020. And is the highest level of  demand AutoTrader has seen of any weekend in 2020.
• The weekend ending 26 April is also 31% higher than the weekend ending 29 March 2020, after lockdown started.

Car dealerships are not ready to fully complete the transaction online yet

COVID-19 will accelerate the advent of this, also called automotive digital retailing. Which is another reason that physical showrooms need to be opened during Level 4 lockdown. This should be done under strict conditions in order to stimulate one of the largest contributors to the SA economy (Automotive).

The vast majority of the jobs (2/3) in Automotive, are in retail in South Africa. The industry is already potentially laying off up to 10% of the workforce. There are also other parts of the value chain in technology companies that are not accounted for in the above and employ thousands of people in small, medium and large businesses like AutoTrader.

Technology businesses like AutoTrader are extremely low risk but ad massive amounts of value to the stimulation of the automotive retail sector.

Consumers need to sell their cars to provide for their families during level 4 lockdown

Consumers who are cash strapped and need money to buy food for their families would need a way in which to generate cash by selling their vehicles. Car dealerships can help them.

With car dealerships shut, this can’t happen.

• Research already shows that 79% of consumers have been financially negatively affected by COVID-19.
• With 10% of people having lost their jobs.
• AutoTrader is experiencing an increase in demand for vehicles under R200k.
• This shows appetite for consumers who want to downgrade their vehicles and potentially free up cashflow to feed their families.
• Consumers are searching at midnight, which shows a serious potential worry about the future and having to sell their cars.

Car dealership showrooms are not like shopping centres or restaurants

• Car dealership showrooms can be controlled much more effectively with strict social distancing regulations.
• Appointment based visits to the dealership with evidence of online application processes.
• Restrictions on how many consumers may visit retail showrooms at any one time.
• Delivering the car to the consumer rather than having the consumer visit the dealership showroom.
• Sanitisation regulations specific to dealerships.
• 1/3 of workforce at a car dealership may be enough to operate at 100% capacity with the balance of 2/3 working from home in a support role.
• E.g. if the dealership has 3 F&I’s, 1 work from the dealership and the balance from home on a rotational basis.
• This will help to avoid job losses as there will be cashflow to keep dealerships afloat.

The consumer car shopping journey has potentially changed under COVID-19 lockdown

• Pre lockdown, the car buying journey took 3-6 months for a car buying consumer. 
• Level 5 Lockdown has more than likely compressed this journey in the short term and created pent up demand and future economic activity for car sales under level 4. This when car dealerships are allowed to trade.
• Releasing this pent up sales pipeline now will help accelerate an already struggling economy.
• Pre lockdown, consumers buying vehicles visited only 1.3 car dealerships before buying a vehicle. This presents a lower risk inside car dealership showrooms.

Finally, in our President Cyril Rhamaphosa’s speech, he mentioned infrastructure stimulus. Without opening up vehicle retailers, particularly commercial vehicle retailers, to be able to buy and sell, infrastructure stimulus would not be achieved. With commercial dealers closed, the supply chain for Yellow Metal, Trucks and Machines will stop.