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Dealer Surgery Webinar #7 Executive Summary 28 April 2020
Dealer Surgery Webinar #7Executive Summary28 April 2020
Introduction
We held the seventh in our series of live webinars on 28th April. A summary of the information provided at that event is set out below which includes the contact details for all presenters.
The main topic this week was property led by Bill Bexson of Automotive Property Consultancy Ltd who gave an insight into the likely trend in property values and the impact of this on how landlords will respond to requests for rent relief from tenants. We have included Bill’s insightful guide in its entirety as an Appendix to this Executive Summary.
MHA MacIntyre Hudson’s Motor Team and our partners are providing immediate expert advice to help the sector understand the challenges posed by COVID-19; to benefit from government support where it is available; and to plan for the future after the outbreak has been contained.
We will be delighted to support you with one-to-one advice, so please contact one of the MHA Macintyre Hudson’s team for direct support.
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Job Retention Scheme
Claims are being processed and payments hitting bank accounts already
If you cannot use the calculator, you’ll need to work out what you can claim manually using the calculation guidance or by seeking professional advice.
HMRC’s Portal is up and running and working quite well
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• 512,000 employers (averaging 128,000 a day)
• 3,807,000 employees (averaging just under £1m a day)
• £4.45 billion (averaging £1.1bn a day)
As at midnight on 23 April the portal had received applications in respect of:
• Pro-rata for payroll (working days) different to claim (calendar days)
• Employer’s NIC after pro-rata above
• Earnings threshold and top-up & employer allowances
• Employer pension after pro-rata above and qualifying earnings threshold
Calculations are complicated because:
• They receive any top-up pay in the claim period
• Returned from statutory leave such as maternity leave in the last three months
• Get director’s payments
• Have been transferred under TUPE
• Have been employed at separate times throughout the year
• Receive employer pension contributions outside of an auto-enrolment pension scheme
HMRC calculator will work for employees on variable pay unless:
It is not possible to amend a claim once it is submitted. HMRC are looking to develop a process to allow for amendments to be made.
Job Retention Schemecontinued
• Furlough start date
• Furlough end date (if known)
• Full amount claimed
If you’re claiming for 100 or more furloughed employees, you’ll need to upload a file containing the following for each employee:
• Provide only the employee information requested here – If more or less information is provided this may risk delaying payment and/or need to provide information again
• Submit one line per employee for the whole period
• Do not break up the calculation into multiple periods within the claim
• Do not split data by contract type
• Upload your file as an .xls, .xssx, .csv or .ods
You’ll need ensure that you:
Collective bargaining - If sufficient numbers of staff involved, may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
Whilst there is a National Minimum Wage increase effective from April furloughed employees are not entitled to NMW whilst they are not working.
• Claims can be made weekly - for weekly paid employees but only include employees who have been furloughed for 3 weeks already!
• Weekly and monthly pay periods – must be in the same claim to avoid:
Claim period confusion:
1. Overlapping of claim periods rejection
2. Daily claim cap rejection
• Make one claim a month (if monthly or combined weekly/monthly).
• Make one claim every 3 weeks if weekly only!
Our recommendations are:
UK bank account number and sort code (only provide bank account details where a BACS payment can be accepted)
Funding
‘Bounce back loans’ for smaller businesses - can apply for max of £50K or 25% of turnover, government will cover the upfront fees; interest for the 1st 12 months, & there will be no repayments for the first 12 months.
• Simple application form (2 pages).
• Loan should arrive within 24 hours.
• Forms requires self-certification that the business was not in financial difficulty as at 31 December 2019 - this will be checked so ensure caution, otherwise the 100% guarantee won’t apply.
• CLBILS is the government backed larger business loan scheme – too early to say how going. Larger, more complicated loans and banks will take longer to process.
• As we have covered in previous webinars (and explained in the previous executive summary documents) we have developed a cashflow template that can help guide dealers towards the preparation of a robust cash flow forecast for both the lockdown period and the recovery period post lockdown – to make best use of this please contact us. You must have an explanation for all key assumptions and numbers and demonstrably credible explanations on the forecast. Simplicity is the key with clear explanations of adjustments.
Global lessons may show what to expect as we exit lockdown
Market Update
• Germany never completely banned car production. Factories stopped after movement restricted and dealerships closed.
• FCA restarted van production in Italy – rate of 70% of pre-lock down
• France – Toyota restarted its production
• Renault will resume production today (28 April)
• Nissan restart in Barcelona on May 4th and piloting safety measures at its production plant in Sunderland.
• JLR plan to begin building cars in Solihull on May 8th.
All very dependent on demand.
• VW started in Wolfsberg last week initially in region of 10-15% of normal seasonal production. Planned to rise to 40% increase within 2 weeks. Extra safety measures in place including temperature testing, sophisticated colour coding to assist social distancing across plants, rigorous surface disinfecting.
• Includes ID3 powered hatch back, critical to VW’s plans for 2020 and into 2021.
• Porsche manufacturing re-started end of last week in Bratislava.
• 70% of dealers in Germany have now re-opened.
• BMW – aiming to reopen its Rolls Royce factory in Goodwood on 4th May and plant in Germany on 11th May (Mini – Oxford, due to re-start on the 18th May).
In Europe some re-starting of production:
Scrappage type scheme to support the stimulation of the new car market across Europe. ICDP has highlighted need for CO2-reducing scrappage scheme to reduce the gap between emission fines and the loss from the COVID lockdown.
• Last scrappage scheme contributed in the region of 400k incremental sales, arguably less beneficial to the UK market. This is one to watch.
‘What Car Survey’ of 3000 online car buyers showed 1/5th of responders are in a position to purchase a vehicle post lock down. 20% of the fifth said they would purchase a car immediately.
Market Updatecontinued
Delivery should be on the back of a truck by 1 person. Documents carried to show that journey is necessary i.e. fulfilling a contractual obligation – vehicle has to be repeatedly sanitised, need for photographic evidence of handover rather than signature. To meet demand, click & collect currently
being considered and implemented in continental European markets – will see how develops as not immediately relevant here until 1st phase of lockdown lifting
Need to be ready to respond, e.g. safe and sanitised hand-over area, customer/staff PPE, appointment based system. Will be the need to meet the social distancing regulations,
Digital signatures best for legal documents where possible. If can start delivery of this ensure robust documentation of process is in place for staff as well as customers in respect of legal perspective.
SMMT data shows sales decline around 44% in March – indication new cars closer to 95% decline in April.
Digital Engagement
Ecommerce is one area that we have seen flourish.
• Beginning of lockdown average of 1 transaction per day for dealers that had ecommerce enabled,
• Now risen to around d 2.5 per dealer and one dealer reported 6 transactions over one weekend.
• Expect this to be a long-term trend; things won’t revert to the way it was before.
Test drives – traditionally seen as crucial to sale.
• A virtual test drive is possible – use video conferencing to show customer the car – e.g. a pre-recorded tour of the car so you can engage with the customer and answer their questions.
• Technology is out there – look at integrating with your phone system as you then have monitoring in place.
• Website button to book appointment for customers if you have the right PPE etc.
• Is WIFI/technology in place?
Dealers who were already engaged across all channels have seen the best improvements,
• Use clear messaging about connecting with consumers whilst following the government guidelines,
Consumers are engaging more as people start to prepare for the end of the lockdown.
Reports of low footfall in Germany now dealers open
Since 8 April there has been some recovery with an 18% rise across digital communication channels.
The lockdown has caused significant reduction in customer engagement across all channels – down 49% year on year.
EMs ecommerce programmes are taking too long to deliver to market – dealers have the opportunity to do this themselves now at an effective time
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• Live chat tools
• Marketing activity remains beneficial
InsuranceUpdate
short. The Government needs overall data results to understand what, if any additional financial support is required
• We have designed a bespoke spreadsheet template, which will be sent out to all who’ve registered, in the next 48 hours enabling participants to submit their financials in a uniform, consistent format. All data provided will of course remain strictly private and confidential!
• Analysis will be completed within 60 days (or less). Hopefully, the sector will come out of lockdown before then, which is important as most businesses won’t be in a position to accurately calculate their true Business Interruption losses until sometime after they return to trading.
• Hamilton Leigh launched a Covid-19 Business Interruption Insurance Recovery Scheme proposal on 27/4/2020 and have commitment from 26 franchised dealers and large dealer groups.
• Target is a minimum of 50 motor dealers and preferably 100. Please please contact Steve Freeman for Lee’s contact details or contact Lee directly [email protected] if you would like to participate in this initiative.
• The proposal document has been sent to selected MHA and Hamilton Leigh clients and the plan is to expand this to both our full client databases this week
• The purpose of the initiative is to identify exactly where the current financial support packages, provided by the Government, fall
Business Interruption Insurance Update
• The common theme is ‘unaccompanied’ – most are considering delivery to a customer’s home, sanitize the vehicle upon arrival and deliver a spare key in antibacterial packaging for the customer to drive whilst the driver waits
• Importantly (even if you are covered for unaccompanied use), you must inform your insurers that a high proportion of demonstrations will now be carried out on an unaccompanied basis as this may affect the underwriting!
Demonstrations – How motor dealers can do this safely post-lockdown?
Premiums and Refunds
• Some brokers still telling dealers that there are no refunds available or that they have been offered 2-3 month premium payment deferrals.
• The vast majority of motor dealers are due a premium refund for the period as insurer’s risk has dramatically reduced – so press them for a refund…not a deferral!
• Ask your broker to convert your policy onto a ‘declaration basis’ and submit your revised turnover, wageroll, gross profit and vehicle/driver numbers for the year. You should receive an appropriate premium refund.
We have a simple templated document which Lee is happy to share.
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Cyber Update
• A ‘We fight Fraud’ webinar was held on 28 April
• Latest attacks include on apple mobile operating system; Microsoft teams and sharing of illegal images on Zoom
• Highlighting weaknesses on remote workers
• Will be sending questionnaires to all attendees of webinar which will then be sent to the Cyber national security centre
VATUpdate
HMRC have updated their guidance on how VAT deferment impacts on large businesses who make payments on account (POAs).
• Where the balancing payment is due after June 30th it must be paid
• Dealers should treat any deferred interim payments as if they had been paid for the purpose of calculating the balancing payment
• If this then results in a net repayment due as a balance, HMRC will not refund this
• As with all deferred payments, POA businesses must bring their VAT account with HMRC up-to-date by 31 March 2021
Steve FreemanHead of Motor, Partner
M: +44 (0)7795 476 651E: [email protected]
Guy AinsleyBusiness Planning Lead
M: +44 (0)7793 848 142E: [email protected]
Jon PollockElectric Vehicle Consultancy Lead
M: +44 (0)7738 756 177E: [email protected]
Jon BeveridgeOEM Consultancy Lead
M: +44 (0)7970 740 625E: [email protected]
Nigel MorrisMotor Tax Head, Director
M: +44(0)7718 340 634E: [email protected]
Lee Cohen Managing Director,Hamilton Leigh
M: +44 (0)7980 606 886 E: [email protected]
Glyn Edwards Motor VAT Head, Director
M: +44(0)7889 537 549E: [email protected]
Greg Taylor Head of MHA Financial Solutions, Partner
M: +44(0)7736 297 072E: [email protected]
Bill BexsonManaging Partner, Automotive Property
M: +44(0)7831 827 442E: [email protected];
Emma Tice Geldards Law Firm
T: +44(0)1332 278 311E: [email protected]
The Team
Andy FlinnCEO at RDS Global
M: +44(0)7795 848 727E: [email protected]
Ben Green Techyo
M: +44(0)7946 040336E: [email protected]
Appendix
To evolve a possible trajectory for property pricing the past is a good place to look first for a guide to what the future might hold. The slides highlight UK economic performance (based on a GDP measurement from Government data) and the accompanying performance of the commercial property market.
The slide below measures GDP from almost the turn of the last century and shows the peaks and troughs of economic performance reflecting dramatic events such as 2 World Wars and the Spanish flu pandemic, which lasted almost 36 months from January 1918 to December 1920. This infected 500 million people – about a third of the world’s population at the time.
Property Performance Notes 28 April 2020
The next slide below demonstrates that from past performance analysis property does not directly follow GDP movements, but is rather a GDP “multiplier”. Property performance over the last 50 years has tracked the direction of GDP movement, but more aggressively, i.e. there are deeper troughs and higher peaks. As such property is more volatile than GDP. This is the shape of the graph landlord investors will be looking at, and it is against this background that rent relief requests will be assessed. Total Return is a measurement of Capital Growth and Income (rent), with income (rent) typically representing the major growth generator, and so proposed reductions in income will accelerate the rate of asset value decline for investors.
On the other hand, as the following slide shows, commercial property is markedly less volatile than equities and the correlation between the two is not as strong as between property and GDP. So a “V” shaped recession in the FTSE does not guarantee there will be a fall in commercial property performance (i.e. 2002 Dot Com bubble), or if there is one that it will be as steep. As such the current projection for 2020 is less volatile than has been so far for equities.
In the final graph below we have used APC’s Investment Yield (Capitalisation Rate) as a proxy for car dealership pricing and plotted the direction of travel alongside the Governments’ own GDP projections. The Government data shows an economic “bounce” in 2021, but other forecasters are more cautious and there is plenty of wider debate about the shape, and speed, of the recovery curve; V, U, L, or even W (which assumes a further “Lockdown”).
All commentators seem agreed that the economic environment post crisis will be very different, and the UK has further differentiated itself from the rest of the world with Brexit.As has been disused on these and other webinars amongst the likely changes will be new working practices incorporating social distancing, a shift to working from home, a greater consumer online shift, continuing low interest rates, labour rates could still rise despite higher unemployment, lower consumer expenditure, higher taxes, and a need for continuing Government support. Regionally London and the South East looks to be the most resilient. The legacy of this crisis will also probably lead to an acceleration in the underlying motor industry structural change towards wider mobility services (“CASE” – connectivity, autonomy, shared, and electric).
It is against this background that rent relief request are being considered. The emphasis will be on demonstrating financial hardship and that all other financial resources have been exhausted. Landlords, particularly financial services and property company, are likely to ask for amongst the following;
From our own sampling there seems to be a typically 25%-33% response rate to rent relief requests so far, with the most sympathetic being from private landlords, either former dealers themselves or privately owned companies who are more empathic to the effects of the crisis. Institutions and property companies whilst generally willing to consider requests, and usually will readily agree to rent being paid monthly, are more demanding in their requirements. They are worried about asset Valuation falls, loan to value ratios, debt covenant breaches, and are wary of being played off against other more readily available funding sources. At present with these landlords to achieve more than monthly rent payment terms or a rent deferral and repayment agreement will necessitate some form of value recovery offer down the line; such as;
• Repayment of deferred rent over a later period
• Delaying rent review
• Bringing forward a rent review
• Extending the lease term
• Removing a break
• Introducing a parent guarantee
• Providing a confidentiality undertaking
• Introducing a Landlord’s break
Property typically reacts slower than other markets and there is no firm data available currently as performance measurements to the end of March do not fully reflect “Lockdown”. Further “sentiment” based survey results are awaited. This briefing is really more in the way of a first instalment as we move towards the June rent quarter day, and hopefully a move towards re-opening will help to shape landlord and tenant engagement over rent payments.
MHA MacIntyre Hudson trading as MacIntyre Hudson LLP is a member of MHA, an independent member of Baker Tilly International Ltd., the members of which are separate and independent legal entities.
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