Today car dealerships can save themselves by optimizing expenses and realizing the fact that you must be prepared for a crisis before it hits. President of the Russian Car Dealership Association (ROAD) Oleg Moseyev spoke to Invest Foresight about the coronavirus, the Russian car market, sales dynamics and the lack of universal recipes for dealing with a crisis.
— How serious do you think the accumulated effect of the COVID-19 pandemic can be on the Russian car industry and car market?
— The pandemic will affect the entire economy and consequently the car industry. If the optimistic prognosis proves true, we should expect a 30% decline in new car sales. According to the negative scenario, the industry may lose up to 50%.
It is difficult to predict what happens to the used car market but the majority of experts agree that the secondary market will also show negative results. Moreover, if the economic situation continues to get worse, prices on used car may also go down.
If people can’t pay off car loans they will start offering them up for sale. Where supply grows, prices go down.
— How low can prices fall?
— It is impossible to say right now. Any estimates would be fortune telling as nobody really understands the depth of this economic pit that we are falling in. Also, there will clearly be a loss of business for automobile services – both operated by car dealerships and otherwise. Moreover, people will be forced to spend less and the average bill for car services will become smaller.
— Is there a regulation that car dealerships could rely on to maintain their business?
— Unfortunately, there is no universal pill. But obviously, a whole package of measures is required. As for car dealerships, they will have to optimize their expenses and, unfortunately, the number of employees to respond to the new circumstances. This is the streamlining of business processes with regard to the new conditions when clients want to receive as many services as possible in a remote format. And we are talking not just about online sales, but also about remote communication with the client.
— And what about the other car market participants?
— Yes, there is also the distributor’s side and the state’s side. As for the distributors, they should seriously reconsider the load on the dealerships. By the way, some of them reached out to the dealers during the hardest times, but some did not or did it on paper only. I am not even talking about investments, just business activity: the test drive fleet, loaner vehicles and the requirements regarding the number of employees.
Plus, there is also the state which, given that car dealers are on the list of the industries that suffered the most from the pandemic, also needs to find a more comprehensive approach to solving the problems of this sector and to provide assistance to everyone, not just the current 10%-15%.
— Should the dealership market expect a huge number of bankruptcies?
— Giving any estimates would again be fortune telling. If the market shrinks twofold and the demand in services decreases, it’s hard to imagine how many companies will leave the market. Apparently, we will need to consider the financial conditions of the dealer and its competitive environment. For instance, if a city has just one dealership, it is one thing, and if there are six, the competition will force some of them to close, even if the city population is over a million.
— What consequences should the car dealer community draw from this pandemic?
— It is necessary to overcome the pandemic with the understanding that one must be prepared for the worst. And they should prepare not after the worst happens, but before. Those dealers that were able to take some measures to support their businesses have a chance to get through such hardships without enduring great losses.
— So there is no common solution?
— No, there isn’t, because each case is unique; each dealership has its own problems and capacities.
By Taras Fomchenkov