Brexit means Britain’s car industry faces “extremely challenging times”, warns Richard Gane, director and automotive specialist at management consultancy, Vendigital.
In an uncertain trading climate, where costs are increasing and demand is nosediving, they are expected to keep investing in technologies and skills to enhance the viability of all-electric and autonomous driving.
The supply chain is taking the brunt of the immediate pressure in terms of stockpiling inventory and the next few months are going to critical. A cliff-edge scenario could force manufacturers to implement more temporary closures or production holidays and it could take up to six months to burn off excess stock in a market facing declining demand.”
Van sales also dropped last year.
Sales of UK vans slumped by 8.8% last month, new figures from the Society of Motor Manufacturers and Traders show.
That means van sales shrank by 1.3% during 2018 as a whole – a smaller decline than the 6.8 drop in car sales, but still disappointing for the sector.
SMMT CEO Mike Hawes fears that it shows businesses are too nervous about Brexit to invest in new vehicles.
“This sector is a key indicator of business confidence in the UK, and operators need stability to renew their fleets. December’s performance was worrying, as was the overall drop in fleet purchases.
Business confidence depends on government providing the right conditions, which first and foremost means taking a ‘No Deal’ Brexit off the table. We have a strong and competitive commercial vehicle market in the UK, one that can flourish in the right economic climate.”
2019 likely to be tough too
Economist Howard Archer of the EY Item Club fears that UK car sales will be weak this year too:
Despite the recent improvement, consumer purchasing power is still relatively limited compared to past norms while confidence is currently fragile with particular caution over making major purchases. Indeed, GfK reported that consumer confidence in December was at the lowest level since July 2013. Meanwhile, with the savings ratio being very low, consumers may at the very least be keen to avoid further dissaving. The August rise in interest rates may have reinforced consumer caution. Furthermore, lenders have cut back on the availability of unsecured consumer credit.
Car manufacturers have been particularly vociferous over the impact that a “no deal” Brexit could have in disrupting their supply chains.
Policymakers need to do more to support the car industry, especially with Brexit looming, argues Ian Gilmartin, Head of Retail & Wholesale at Barclays Corporate Banking.
“We’ve known for several months that the overall new car figure for 2018 would be significantly down on the 2017 result, so today’s confirmation won’t come as a surprise but should serve as a timely reminder to policymakers of the urgent need to support our car industry at its time of need.
Expert: Brexit is hitting car sales
With no clarity on how the UK’s departure from the EU will play out, it’s no wonder that consumers are reluctant to splash out on big-ticket items such as a new car.
Seán Kemple, director of sales at Close Brothers Motor Finance, pins the blame for falling car sales on Brexit (along with the global economic slowdown, and confusion over fuel types following the diesel debacle).
The last couple of months has seen £100bn wiped off the value of the world’s biggest listed carmakers last year and car production slumping in the third quarter of 2018.
“Brexit is absolutely having an impact on consumer confidence, and we can see that in these car sales. The priority for now is to hope that the Government’s withdrawal agreement delivers some clarity upon which we can start to move forward. However, we still have confusion in the market place from fuel types to finance options, which will continue to exist once Brexit is out the way.
During this extended period of uncertainty, dealers are best placed to be a source of expertise and reassurance to customers. If they hope to bolster their bottom lines, they must seize this opportunity with both hands as we move into 2019.”
Ian Plummer, Auto Trader Director, reckons the car industry could get a boost in 2019 if the UK achieves a smooth Brexit (that’s a big if, of course).
Brexit anxieties also cast a long shadow last year and will continue to do so beyond the UK’s withdrawal of the EU. A ‘no deal’ will likely impact new car sales as poor exchange rates and potential tariffs could force brands to pass on the cost to consumers.
However, a smooth Brexit resulting in stable exchange rates and trade agreements, would signal to manufacturers that the UK remains a positive growth market with good profit opportunities, ensuring both a healthy pipeline of new stock and some great deals for consumers.
The slide in car sales was widespread, with individuals, companies and fleet managers all cutting back.
The SMMT says:
The biggest losses were felt in the fleet sector (down -7.3%), while private motorists and smaller business operators registered -6.4% and -5.6% fewer new cars respectively.
While diesel sales slumped, sales of electric cars jumped by 20% last year – but still remain a small part of the market.
More than 141,000 alternatively-fuelled vehicles were sold, up from almost 117,000 in 2017. That’s a 6% share of total sales.
Petrol electric hybrids remained the most popular choice, up +21.3% to 81,156 units. Sales of “pure electric cars” rose by 13.8%, but only make up 0.7% of the overall market (with 15,474 sold).
The SMMT fears that growth is slowing, thanks to the government’s controversial decision in October to lower, or scrap, grants for hybrid and electric vehicles.
Given the reduction in government incentives, the pace of growth of plug-in cars is now falling significantly behind the EU average.
UK CAR SALES SLIDE CONFIRMED
It’s official: UK car sales have fallen by the biggest amount since the days of the financial crisis.
The Society of Motor Manufacturers and Traders has just reported that new registrations slumped by 6.8% last year, as anticipated earlier this morning, to 2,367,147 units.
It’s the second annual decline in a row, as this chart shows:
That includes a 5.5% year-on-year drop in sales in December.
Diesel sales crashed by 29.6% in 2018, as drivers were deterred from buying a new model (or trying to sell their old one) by the aftermath of Volkswagen’s emissions scandal.
The SMMT says the industry suffered “a turbulent year”, with consumer and business confidence falling (thanks, Brexit!), plus model changes, regulatory upheaval and continued anti-diesel policies.
Mike Hawes, SMMT chief executive, says:
“A second year of substantial decline is a major concern, as falling consumer confidence, confusing fiscal and policy messages and shortages due to regulatory changes have combined to create a highly turbulent market.
The industry is facing ever-tougher environmental targets against a backdrop of political and economic uncertainty that is weakening demand so these figures should act as a wake-up call for policy makers. Supportive, not punitive measures are needed to grow sales, because replacing older cars with new technologies, whether diesel, petrol, hybrid or plug-in, is good for the environment, the consumer, the industry and the exchequer.”
More to follow….
We also have worrying economic news from Germany.
German factory orders dropped by 1% month-on-month in November, the first monthly decline in four months.
On an annual basis, orders were 4% lower than a year ago – suggesting trade war fears, Brexit, and the wider eurozone slowdown are all hurting Europe’s latest economy.
Britons aren’t buying as many new cars…but they are buying more food from Aldi.
The German discount supermarket chain has just recorded its busiest ever week, as shoppers splashed out on its premium offerings for Christmas.
My colleague Rob Davies explains:
Aldi sold nearly £1bn of goods in the UK during December thanks to rising demand for its premium ranges, the discounter said on Monday.
The German supermarket giant’s British arm, the country’s fifth-largest grocery chain, said the week beginning 17 December was the busiest in its history, with sales up 10% on last year.
Aldi said its sales performance reflected a surge in demand for its premium ranges – Specially Selected and Exquisite.
“We begin the new year with great momentum as the UK’s fastest-growing supermarket and on the back of record Christmas sales,” said the chief executive, Giles Hurley.
Car sales: what the media say
The Financial Times agrees that the diesel emissions scandal has a serious impact on Uk car sales last year:
Mike Hawes, chief executive of the SMMT, said the drop was due to a combination of new emissions tests leading to supply bottlenecks, diesel drivers holding on to their cars for longer and low consumer confidence.
“Brexit is an issue,” he said, but he added that it would be “unfair to attribute [the decline] wholly to Brexit.” He said Dieselgate — the scandal that revealed widespread cheating in emissions testing by manufacturers — was probably the most significant factor as it was the only category in which sales dropped.
The Independent has highlighted the dangers posed by Brexit:
The SMMT said that its members had spent some time examining what might happen under a disruptive no-deal Brexit, but many car imports are through specialist centres such as Immingham rather than the traditional cross-channel routes. There seems to be little sign, as yet, of consumers buying cars in advance of possible shortages, but the SMMT said that a first-quarter sales boost in 2019 was possible. It added that its members had not been stockpiling new vehicles.
On the other hand, UK manufacturing operations have very little scope for warehousing new parts and any disruption to the 1,100 trucks a day coming to deliver parts to assembly lines across Britain would mean line stoppages, a rapid escalation in costs and a threat to future production and investment.
Sky News points out:
The SMMT, like other business bodies, is calling for MPs to back Theresa May’s Brexit agreement and avoid a no-deal scenario.
It says that crashing out of the EU without an agreement risked destroying the car manufacturing industry, which employs more than 850,000 people in the UK.
How diesel scandal hurt the industry
The drop in car sales can be firmly pinned on the 2015 diesel emissions scandal, which exposed how Volkswagen has used ‘cheat software’ to hide how much pollution its cars were pumping out.
This hurt demand for new diesel cars, and slashed the second-hand value of old diesels – making it harder to trade them in for a shiny new model.
The scandal also prompted regulators to introduce a new tougher test, the Worldwide harmonised Light vehicles Test Procedure (or WLTP). It did a better job of simulating real-world driving conditions, making it harder for manufacturers to cheat.
However, this also caused significant delays, as manufacturers have struggled to get their new models tested, and certified as compliant with WLTP.
UK car sales have now fallen for two years running. The 7%-ish drop in 2018 follows a 5.7% drop in 2017.
The agenda: UK car sales suffer worst fall in a decade
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A potent cocktail of threats have hit Britain’s car industry in the last year, sending sales sliding at their fastest rate since the financial crisis.
New car sales slumped by almost 7% in 2018, according to new data from the Society of Motor Manufacturers and Traders, to around 2.37 vehicles.
It blames a Brexit-induced slide in consumer confidence, the diesel emissions scandal and a new, more rigorous testing regime which has made it harder for European manufacturers to get models on the road.
This is the biggest drop in car sales since 2008, when car sales slumped by over 11% in the aftermath of the financial crisis. It’s the latest signal that the UK economy has weakened.
The SMMT also predicts that sales will fall 2% in 2019, even on the assumption that Britain leaves the EU in March with a withdrawal agreement.
The trade body has declined to estimate how car sales would perform in a no-deal scenario — something the SMMT sees as a “catastrophe” for the UK car industry (given its reliance on just-in-time supply chains, and the single market).
The SMMT will release its final figures for 2018 at 9am GMT, so stay tuned.
Also coming up today
After some wild sessions recently, global stock markets are starting the new week in a better mood.
Shares have risen in Asia, after Federal Reserve Chairman Jerome Powell tried to reassure investors – saying the Fed’s interest rate policy is flexible and officials are “listening carefully” to financial markets.
Britain’s FTSE is expected to open a little higher too.
- 9am GMT: UK car registration figures for December 2018
- 9.30am GMT: Eurozone Sentix investor confidence report for January