Car dealers are preparing to cut tens of thousands of jobs across the UK in the coming months as they scale back operations in the face of falling sales because of coronavirus.
Lookers, one of the largest listed groups, announced on Thursday it would shed 1,500 roles as part of a scheme to close 12 sites and slash costs.
But the industry is braced for far deeper cuts, with tens of thousands of people still on furlough schemes that the government will unwind later this year.
At most, a quarter of the 600,000 jobs supported by the sector may be lost, according to worst-case-scenario estimates from executives across a range of both privately owned and listed dealership groups.
“In the best case, it’s tens of thousands, in the worst case it’s more like 150,000,” said the chief executive of one dealer group. “Until the furlough scheme is concluded, until the [Brexit] transition agreement is done, we are all insulated from the reality of the situation.”
The showroom sector has been slowly declining for several years, as more consumers browse online and require fewer test drives.
But the sales squeeze because of the pandemic is set to accelerate consolidation across the sector, and cost cutting by big groups.
Since showrooms flung open their doors on Monday, business has been encouraging, with several groups reporting higher-than expected interest, as well as a backlog of internet orders from during the lockdown, according to internal sales data from several companies seen by the FT.
However, much of the demand is driven by people renewing past deals and the backlog of orders.
“The worry is it’s just pent up demand that will fizzle out,” said the chief executive of another dealership group.
This weekend, the first since opening, is expected to be strong according both to group executives, and to dealership heads at multiple showrooms visited by the FT over the last week. “The weekend will be monstrous,” said one dealer group CEO.
But the sustainability of the trading is under question.
In Germany, new car sales in May were 50 per cent lower than a year earlier, despite showrooms being open for the whole month.
UK new car sales so far this year, which include April and May when dealers were closed, are down by 50 per cent, according to SMMT data, and are expected to fall by a third across the whole year.
“It will be towards September, October that we will get a better sense of the market,” said one senior industry figure.
The government’s support scheme is currently expected to wind down in October, forcing companies to decide whether to reinstate staff, or release them.
While thousands of workers have been brought back into showrooms and garages as they reopened, more than a third of the industry is thought to be furloughed.
“We would like to bring everyone back but it’s all about demand,” said one dealer group CEO. “We simply don’t know yet. The economy is going to go through tough times. We live and breath consumer confidence.”
There are some bright spots. The value of used cars, a segment four times the size of new ones, is holding up amid robust demand as people trade in cheaper vehicles, or buy second hand to avoid taking public transport.
Online-only deliveries have also risen. Despite every showroom being closed in May, some 13,000 cars were still sold to consumers in the month, according to the SMMT.
“One in three retail sales are now done online, but we are way off this in the automotive sector,” said Ian Plummer, commercial director at Auto Trader, who expects more motorists to move to online ordering. Traffic at Auto Trader’s online marketplace has already recovered to levels before the lockdown.
“For 20 years we have talked about people moving away from dealerships, but if you look at the numbers it hasn’t happened,” said Sue Robinson, director of the National Franchise Dealer Association.
She added that the number of dealer sites has only fallen from 4,792 dealers in 2009 to 4,487 last year.
“Dealers are resilient, and they will still exist in the future, despite the doomsayers.”