James Davis, Customer Insight Director at Cox Automotive UK, explores why the link between commercial vehicles and business cashflow has become more apparent than ever.
The saying goes ‘If you bought it, a commercial vehicle brought it’, but this has taken on a new meaning as we have found ourselves locked out of the physical retail and recreational worlds.
This pandemic has pressed the pause and reset buttons for everyone on the planet. It’s also reinforced just how fragile the human race is and highlighted our reliance on just-in-time global supply chains.
Initial consumer panic-buying trends pressured suppliers and logistics to upscale from peacetime to Christmas time in a matter of hours, with many supermarkets reporting takings in March greater than those usually seen during the festive break. And then, unable to visit retail shops, consumers switched online, causing courier delivery firms to report a similar Christmas-like spike.
This example perfectly demonstrates how the previously invisible logistics industry was thrust into the spotlight, with the government helping the sector by rapidly legislating temporary relaxations of delivery restrictions and drivers’ hours.
All this has made the economic link between commercial vehicles and business cashflow more apparent than ever. Whilst the economy stalled for three months, commercial vehicles continued to provide a dependable backbone; delivering goods and services where operations were classified as key.
Although it’s easy to draw parallels with the 2007-2009 recession, the resultant COVID-19 recession has been driven by a global public health emergency, starkly different to banking liquidity issues we saw a decade ago. It is fair to conclude the impact and recovery are likely to be very different.
Recovery will of course happen, and the predicted shape of that economic recovery replicates many characters in the alphabet – L, U, V, W and, within Cox Automotive’s US Economic Insight Team, even a shape resembling the Nike ‘swoosh’. It remains to be seen how we will recover, especially when the appearance of further outbreaks remains a distinct possibility.
Some headlines are frankly unhelpful. Of course new vehicle sales will be down – showrooms were closed! As OEM factories re-open, along with tier 1 and 2 suppliers, production levels will also be down, due in the main to social distancing.
As always, insight remains crucial. Consumer searches on classified websites have increased year-on-year, smashing all expectations, as is the wholesale auction market. A note of caution is needed due to the likelihood of a market cooling once pent up demand is spent. That said, I don’t believe seasonality will impact us this year, school breaks and UK-based summer holidays means our money will be spent where it matters: on our valued UK businesses.
I believe COVID-19 is unlikely to wreak long-term destruction on our economy like the 2007-2009 global financial crisis. Governments across the world have stepped in with extensive interventions to mitigate effects this time round. In fact it would appear specific UK support – business rate relief, deferred HMRC VAT payments, employee furlough schemes and mortgage holidays – is releasing cashflow to permit business to reinvest in their CV fleet.
For businesses considering buying new, the used CV market perhaps offers even better value. However, used supply shortages are causing record demand, with spikes in conversion rates and values belying our current recessionary situation.
Despite all this, CVs are business critical tools that power and protect cashflow; investment projects and economic stimulus indicate their importance will become even more apparent as we emerge from the pandemic. In the March budget, Rishi Sunak announced £27bn for roadbuilding projects through to 2025. Prior to that, in February, Boris Johnson rubber stamped HS2 to Birmingham. All these future infrastructure projects rely heavily on commercial vehicles.
But for now, there is no doubt we find ourselves in a new world and the pandemic will accelerate failing businesses and business models where cashflow evaporates. There will of course be winners as well as losers. Home delivery and local gig economy services have flourished during lockdown and their success is likely to continue with social distancing still mandated.
Where consumers have switched to shopping locally at butchers, farm shops and village shops, these businesses may well buy vehicles to continue that service and grow. On the other side, business restructuring and closures will lead to many early fleet contract terminations. As a result, the daily rental flexi-rent model is likely to flourish in the short-term with businesses looking to on/off hire without penalty.
In order to return to work safely, the CV sector faces specific pressures from social distancing and legislation. Work crews are being separated into multiple vehicles or split shifts, and social distancing will impact costs in many sectors, particularly manufacturing and construction where this is being balanced against reduced productivity.
Hindsight will reveal the path, but what is abundantly clear is that a robust economic recovery in the UK is massively reliant on commercial vehicles. Like many hidden heroes - in healthcare and other key worker categories – CV’s true value to society has been rightly elevated. CVs are the oil in the wheels of the UK; the enablers that are proving their value by bringing a degree of normality and life to the doorsteps of consumers and business alike.