Demand for vehicle warranties has risen markedly post-pandemic, as demand for used vehicles surges in uncertain economic times, according to Chris Ullathorne.
QBE has experienced a significant uptick in demand for vehicle warranty products since the lockdown lifted in June. Furthermore, the duration of warranties purchased throughout this period has also increased, with average term durations reaching an all-time high, suggesting that consumers are more conscious of the need to protect their assets and future finances in the current unpredictable environment.
This increase in demand for warranty products is the result of increased demand for used vehicles, which has surged in the second half of 2021 with pent-up demand and changing consumer behaviour. Those with Personal Contract Purchase agreements, for example, are now more likely to extend warranties as they retain vehicles, rather than replace them at the end of the finance contract, as they may have done pre-Covid.
The automotive sector has been hit hard by the pandemic and faces a tough period of trading amid ongoing economic uncertainty. This coupled with the knock-on effects of the semiconductor shortage driving supply issues of new vehicles remain a threat to the industry. There are, however, varying levels of optimism within the industry. Some manufacturers believe supply will improve as early as quarter 1 next year, whereas others feel this current situation is not set to fully resolve itself until 2023.
According to the Society of Motor Manufacturers and Traders (SMMT), September 2021 shows a decline in new vehicle sales of 34.4% against September 2020. However, despite this decrease in sales, YTD numbers show an overall increase in new vehicle sales of 5.9% during the same period last year.
Despite remaining operational during the last 18 months, body repair shops also experienced an 80% reduction in accident repair claims, and are still operating at 60% of where they would expect to be, according to the National Body Repair Association.
However, the automotive sector has now emerged from lockdown, and has been adapting well to the new environment. All UK dealerships have now reopened and are experiencing high levels of footfall, according to the National Franchised Dealers Association (NFDA). Dealers have reported high levels of consumer traffic for used vehicles, where 38% of NFDA members saw an increase in footfall of up to 25%, compared with pre-covid levels.
Sales in the used-vehicle market have been quite the talking point. According to the Auto Trader Retail Price Index, price growth during September reached another all-time high, posting a 21.4% like for like increase in used vehicle vales. This surpasses August’s 17.2% month on month increase, which itself was the largest single monthly increase on record. Auction houses are experiencing strong vehicle sales values and demand, according to the National Association of Motor Auctions (NAMA), reporting used vehicles are in demand from consumers post-lockdown as many look for an alternative to public transport whilst others have delayed purchases from earlier in the year.
Like for like prices for both used petrol and diesel cars continued to perform strongly, with the average price of a used petrol car increasing 21.7% year on year last month (up from 16.9% in August) and used diesels increasing 22.7% (up from 18.7%). Average retail prices were £14,793 and £16,082 respectively.
Used vehicle sales are also likely to be buoyed by longer waits for new cars, With some manufacturer’s now quoting a lead time over 12 months for many of their more popular models. According to the NFDA, 85% of dealers have experienced an increase in online enquires for used vehicles, compared with 58% for new vehicles.
As a result of the perfect storm we find ourselves in, it is unclear how long the market will take to realign itself: Used car stock is heavily reliant on trade-ins from new vehicle sales to drive fresh stock, with some dealers currently reporting used vehicle stock decline of circa 30% as post-pandemic demand outstripped supply.
Many dealerships have used recent months wisely to restructure and prepare themselves for the inevitable economic consequences of the pandemic, however, the recent rebound in car sales may not be sustainable. It looks inevitable that the short to medium term future will see dealerships needing to rely more heavily on used vehicle sales and after sales service for revenues against a backdrop of a reduction in used stock availability and the ever-increasing values of available stock.
The last 18 months has seen consumers habits move more towards digital channels. Furthermore, the industry has recognised an increase in consumer traffic looking to purchase warranties via non dealer related digital platforms that provide an independent “direct to consumer” digital proposition.
One thing that is evident is that due to the uncertain times we find ourselves in, they are purchasing warranties to protect themselves and budget for the future.
Warranties provide dealers with a valuable additional revenue stream, which will prove important during the difficult trading environment ahead. They support used vehicle sales by giving consumers confidence in their purchase and their ability to meet future repair and running cost: Vehicle repair costs have been rising with more sophisticated technology and increased cost of components, costs that may be harder to meet in the current economic environment. They also provide a whole ecosystem of benefits that help support after sales services, from servicing a repair to fostering customer loyalty and satisfaction.
Vehicle warranty insurance is particularly relevant today, protecting consumers in difficult economic times, and providing dealers with multiple revenue streams. However, not all warranty providers are equal. More than ever, consumers will want to be sure a warranty will respond when needed and that the provider is financially robust. As one of the world’s top 20 general insurance companies (rated A+ by Standard & Poor’s), QBE is a long-established provider of vehicle warranties, from branded manufacturer affinity products through to warranties sold via national dealerships and local independents.