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Pessimism and optimism

Sunday, September 26 2010 :: Keywords: auto market research, automotive research :: Permalink

The least fun part of research is the statistics especially the maths required to work out cause and effect. We employ experts to do all this sort of stuff for us who render forth in what seems like a foreign language full of mysterious words and phrases like ‘t-tests’, ‘significance’ and ‘correlation’.

New Car Sales Research, New Car Confidence

Analysing correlation is important if you want to explore cause and effect. Sometimes, though, you don’t need to be a statistician to see how one thing correlates with another. As the graph illustrates, there is evidently a connection between consumer confidence and new car sales. Although the graph uses a six-month moving average to smooth out the background noise of the month-on-month swings in new car sales, the relationship between the two is still clear even if it hadn’t been cleaned up.

Such an obvious link between consumer confidence and new car sales suggests cause and effect. The relationship is intuitive anyway. If customers don’t feel secure they are less likely to buy a new car. Indeed, they are less likely to buy any big ticket items, including houses and holidays. And even if they have the money they would rather save it for the proverbial rainy day.

The graph also shows that the scrappage scheme boosted new car sales despite customer confidence declining over the period of its operation. However, the scrappage scheme is no longer with us and there is VAT increase in January 2011. As for customer confidence, it appears to be on the wane again and this is backed up by another measure from the same monthly Nationwide Building Society survey – the Expectations Index.

The Expectations Index reports the views of people about the economic situation going forward six months, which on a personal level means jobs and household incomes. We don’t have the space to include a graph of the Expectations Index, but this too has the same obvious correlation with new car sales. The latest survey indicates a great deal of pessimism about the next six months.

In comparison, the UK’s franchised dealer groups are verging on optimistic. Most groups have now lodged their 2009 accounts with Companies House and the PLCs have been reporting interim results. In general, groups worked hard in 2008 and 2009 to pare down their operations. Unprofitable outlets and franchises were sold or closed, expenses and overheads were reduced, and staff numbers cut – substantially in some cases. As a result, the vast majority of groups made a profit in 2009 and many increased turnover too.

Some dealer groups also included a commentary on the future outlook in their 2009 accounts. These are generally positive and often explain how they will set about further improvements. Used car sales and aftersales feature prominently but there is hardly a mention of new car sales. Given that 2009 was an awful year economically, and most dealer groups still managed to turn a profit, perhaps their optimism for 2010 and 2011 is justified.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in November 2010.(See auto-retail.co.uk for subscription details.)

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