The side effects of COVID-19 on vehicle demand

28 April 2020

28 April 2020

Autovista Group senior data journalist Neil King explores the abstract side effects of the coronavirus (COVID-19) pandemic on vehicle demand, beyond the economic impact. These include societal changes such as an aversion to public transport and shared mobility, increased working from home, and the rise in online sales and home deliveries.

As countries bring the COVID-19 pandemic under control and relax lockdown measures, including the reopening of car dealerships and registration centres, demand for vehicles - both new and used - will recover. This is already the case in China, where reports suggest that demand is further benefitting from an ongoing aversion to public transport.

Findings of an Ipsos survey conducted in China at the end of February revealed that ‘non-car owners have a higher intention to acquire new cars, due to a lack of trust in public transportation.’

Yoann Taitz, operations director at Autovista Group in France, believes ‘we may see, as in China, a wave to buy a private car to avoid taking public transport. In this case, people would focus more on B and C segment cars, and especially SUVs that are trendy, while D and higher segments that are already less attractive would be of even less interest.’

‘This does of course depend on where in the country people live and the types of journeys they regularly need to take,’ commented Jayson Whittington, chief editor, cars and leisure vehicles at Glass’s. ‘For people in inner cities, this will be almost impossible or certainly impractical. Also, many who regularly use public transport simply have to, due to the running costs and parking charges associated with a commute to work.’

Aside from public transport, car-rental companies are likely to suffer beyond their coronavirus-led woes and the mobility trend towards car-sharing may also dampen, at least in the short term.

Ana Azofra, valuations and insights manager at Autovista in Spain commented: ‘I think that in the next one to two years, a private car will give more security. In the first days of the crisis, before the lockdown, some car-sharing companies launched campaigns conveying that the cars would be disinfected every day, or even after every use. It did not work and their use fell dramatically.’

The view from Germany differs slightly ‘as the total lockdown hasn’t been that long in Germany as to cause massive long-lasting changes in consumer behaviour’ said Andreas Geilenbrügge, head of valuations and insights at Schwacke. ‘COVID-19 might put more pressure on the subscription business but what is more likely to me is that customers– if forced to by external drivers – will tend to seek more ‘conservative’ alternatives, in this case, financing and leasing,’ he added.

Demand for both new and used cars may take months, if not years, to recover to pre-coronavirus levels and so vehicle financing and leasing companies may seek solace in this change in car-purchasing behaviour as consumers tighten their belts. In the longer term, the rise in shared mobility will inevitably return and the predictions are that private car ownership will fall again. This does not bode well for leasing and finance companies that actually own many of the cars but as the sharing economy recovers, so too will total vehicle demand. The timing and magnitude of these shifts will differ from market to market.

Increased working from home

A key societal change brought about by the COVID-19 pandemic is increased working from home. Countless employees around the world, who previously commuted to a workplace on most if not all days, are now entrenched at home and as employers have rewritten contracts, this phenomenon is likely to persist even after lockdown measures are relaxed. This will lead to lower replacement demand for vehicles overall as well as curtailing the need for multi-car ownership.

‘This situation will break the barriers that many companies had against working from home. This could restructure the demand. A second car in the household would be needed less and this could also affect the current segment mix. However, this change will not necessarily result in vehicle ‘downsizing’ as a household’s single car would need to be practical and more oriented to other needs,’ Azofra commented.

Whittington added that ‘it is possible that we will see a move away from the perceived need for a new and reliable car to one that is older, if annual mileage is likely to reduce substantially. This could be good news for residual values but a further issue for new-car demand.’

Surge in home deliveries boosts van demand

Another side effect of the COVID-19 lockdowns is an acceleration of the trend towards online shopping because of social distancing and the closure of physical retail premises. The sharp increase in online orders has caused a surge in home deliveries and so, in the short term, companies may look to lease and finance more light commercial vehicles (LCVs) and fewer cars to follow demand.

This trend will persist as employees continue to work from home and small traders such as plumbers and electricians will always need a van. The use of LCVs is therefore expected to increase beyond the short term, even as the return of shared mobility causes a decline in private-car ownership.

Whether people want to use a shared car now or in the future, perhaps some of the safer money is in increasing the proportion of LCVs in leased fleets because they are getting used – and will continue to be.

In his next analysis, King will explore the impact of the COVID-19 pandemic on electromobility, in the context of reduced pollution and potential scrappage schemes.

Autovista Group’s latest thinking, insight, and data on the coronavirus pandemic and its impact on the automotive industry can be found here. Be the first to know when we publish something new - sign up to the Autovista Group Daily Brief.