- A modestly improved end to a difficult year for new car sales as they rose 3.4% year-on-year in December. This was only the fourth month of last year that achieved a year-on-year increase in sales.
- Nevertheless, new car sales declined 2.4% over 2019 to 2,311,140 – the weakest level since 2013 and a third successive drop from a peak level of 2,692,786 vehicles in 2016. New car sales in 2019 were 14.2% below their 2016 peak level.
- The hope for car manufacturers is that December’s small rise in sales is the harbinger of better times to come. In particular, the car sector will be hoping that in 2020 the uncertainties surrounding the economy will be diminished by the decisive General Election result and the UK leaving the EU with Boris Johnson’s deal on 31 January. This should encourage businesses to step up their fleet purchases and makes consumers more willing to splash out on big-ticket items such as cars.
- Consistent with this hope and encouragingly for the car sector, GfK reported a spike in consumer confidence after December’s decisive General Election result with an increased willingness to make major purchases.
- New car sales were hampered by a number of roadblocks through 2019 – consumer and business caution over making major purchases, sharply reduced demand for diesel cars amid environmental concerns and uncertainties over policy, and stricter emission regulations affecting supply. A further hit to the sector has come from the removal of incentives to buy plug-in hybrid vehicles.
- Private new car sales were particularly weak over 2019, being flat in December and falling 3.2% over the year. Consumers have recently appeared largely cautious in making the major big-ticket purchase of a car amid major domestic, economic and Brexit uncertainties despite recent improved purchasing power and elevated employment. In fact, the fundamentals for consumers have recently shown some slippage from the peak levels seen around mid-2019 although they are still pretty decent.
- Fleet sales were the strongest sector in December, seeing a gain of 7.3% year-on-year. This could be due to some fleet operators wanting to replace vehicles after holding off for some time. It is also possible that fleet sales may have had a lift from manufacturers offering large discounts in an attempt to shift stock ahead of the more stringent CO2 targets, which come into effect in 2020.
- Businesses overall still appear to be cautious over making new car purchases as they are faced by a soft economy together with heightened Brexit and domestic political uncertainties. A number of businesses may well be delaying the replacement of their fleet vehicles. They could well be further encouraged to do so until there is greater clarity over the domestic political situation and Brexit. However, with Brexit uncertainties likely to be appreciable through 2020 and the domestic and global economic outlook challenging, businesses may remain cautious over their fleet purchases.
- UK car manufacturers have been particularly vociferous about the damage to their supply chains and prospects that would come from a "no deal" UK exit from the EU. However, car manufacturers may be concerned about exactly what form the UK’s longer-term relationship with the EU will take and the possibility that a transition arrangement could expire at the end of 2020 without the UK and EU coming to agreement on the way forward.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The SMMT reported that new car sales rose 3.4% year-on-year to 148.977 vehicles in December. This was only the fourth monthly year-on-year increase in new car sales achieved in 2019 and followed drops of 1.3% in November and 6.7% in October.
“Consequently, new car sales fell 2.4% over 2019 to 2,311,140 vehicles. This was the weakest year for car sales since 2013, and a third successive drop from a peak level of 2,692,786 vehicles in 2016. Indeed, new car sales in 2019 were 14.7% below their peak level of 2016.
“The automotive sector may take some solace from new car sales ending 2019 with a small rise. The sector can also take some hope from strong demand for alternatively fuelled vehicles, which took a record 7.4% share of the market in 2019.
“New car sales have been driven down by a number of roadblocks – business and consumer caution over making major purchases, sharply reduced demand for diesel cars amid environmental concerns and uncertainties over policy, and stricter emission regulations affecting supply, with another round of emissions testing legislation coming into effect on 1 September. A further hit to the sector has come from the removal of incentives to buy plug-in hybrid vehicles.
“Diesel sales fell 19.0% in December as they continued to be impacted by environmental concerns and uncertainties over government measures to counter this.
Private new car sales flat in December
“Private new car sales edged up 0.1% year-on-year in December to 54,814 vehicles. This followed substantial drops of 6.1% in November and 13.2% in October. They had edged up 0.1% year-on-year in September (helped by new private car sales had plunged 20.1% year-on-year in September 2018), which had been the first increase since February.
“Consequently, private new car sales were down 3.2% over 2019 at 1,018,258 vehicles. This followed a decline of 6.4% in 2018.
“Consumers appear to have been cautious in making the big-ticket purchase of a car amid major uncertainties despite improved purchasing power and elevated employment. Real earnings growth has improved significantly since mid-2018, rising from just 0.1% to a near four-year high of 2.0% in the three months to July 2019. Also helping matters, employment reached a record high of 32.811 million in the three months to June.
“While the fundamentals for consumers remain pretty decent, they may well have peaked.
“Significantly, employment has essentially flat-lined overall in recent months, standing at 32.801 million in the three months to October compared to the record high of 32.811 million achieved in the three months to June. The labour market may well be subdued in the near-term at least as companies face a soft domestic economy and still significant uncertainties.
“Additionally, annual earnings growth slowed to 3.2% in the three months to October from the 11-year high of 3.9% in the three months to July. While this was negatively affected by lower bonus payments, it is notable that regular earnings growth has also moderated to 3.5% in the three months to October from a peak of 3.9%. We suspect that earnings growth will likely stabilise around current levels. With businesses still likely to be cautious over the outlook, we suspect that they will increasingly look to contain pay increases. Meanwhile, heightened consumer concerns and uncertainties may increasingly facilitate companies’ ability to limit earnings.
“On the positive side, inflation (stable at a three-year low of 1.5% in November) is limited and looks likely to remain so.
“Some consumers will benefit next April from the ending of the four-year freeze on most working-age benefits.
“There are other factors which may limit the consumer spending. In particular, with uncertainties still high and the outlook problematic, many consumers may be keen to avoid dissaving. Meanwhile, lenders have cut back on the availability of unsecured consumer credit and tightened lending standards.
Fleet sales up in December with modest rise over 2019
“New car sales to the fleet sector rose 7.3% year-on-year in December to 89,225 vehicles. This followed an increase of 2.8% in November and could be due to some fleet operators feeling they need to replace vehicles after holding off for some time.
“It is also possible that fleet sales may have been lifted by manufacturers offering large discounts in an attempt to shift stock ahead of the more stringent CO2 targets which come into effect in 2020.
“Businesses overall appear to be cautious over making new car purchases as they are faced by a soft economy together with heightened Brexit and domestic political uncertainties. A number of businesses may well be delaying the replacement of their fleet vehicles, and they could be further encouraged to do so until there is greater clarity over the domestic political situation and Brexit. However, with Brexit uncertainties likely to continue through 2020 and the domestic and global economic outlook challenging, businesses may well remain cautious over their fleet purchases.
“Fleet sales rose 0.8% overall in 2019 to 1,232,447 vehicles. This followed a decline of 7.3% in 2018.
“Finally, new car sales to the business sector – which are now tiny – were down 20.5% year-on-year in December and were limited to 4,958 vehicles. They were down 34.4% over 2019 at 60,435 vehicles. They fell 5.6% overall in 2018.”