- UK new car sales started off 2020 in reverse as they fell 7.3% year-on-year in January. This followed an overall drop of 2.4% in 2019 when sales were at a six-year low of 2.3 million.
- Both private (down 13.9%) and fleet (down 2.2%) new car sales suffered year-on-year drops in January, indicating that the sector was not an early beneficiary from reduced uncertainties following December's decisive election and greater near-term clarity over Brexit.
- January’s particularly sharp decline in private sales hardly suggest that consumers were more willing to splash out on a car, while the drop in fleet sales also suggests that businesses were no more willing to make fleet purchases. It is notable that while GfK reported that consumer confidence rose to a 16-month high in January, their willingness to make major purchases in the form of cars dipped.
- New car sales have been hampered by a number of roadblocks; consumer and business caution over making major purchases, reduced demand for diesel cars amid environmental concerns and uncertainties over evolving 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.
- The car sector will be hoping that reduced near-term uncertainties facing the UK economy will ultimately feed through to lift willingness to buy big-ticket items like cars.
- UK car manufacturers have been particularly vociferous about the damage to their supply chains and the possible outcomes of a "no deal" UK exit from the EU.
- However, car manufacturers will be seriously concerned about exactly what form the UK’s longer-term relationship with the EU will take.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The SMMT reported that new car sales fell 7.3% year-on-year in January 2020 to 149,279 units.
“This followed a gain of 3.4% year-on-year in December 2019, which had been only the fourth increase over the year. Indeed, 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.
“New car sales have been driven down by a number of roadblocks; business and consumer caution over making major purchases, a sharply reduced demand for diesel cars amid environmental concerns and uncertainties over policy, and stricter emission regulations affecting supply (another round of emissions testing legislation coming into effect on 1 September). A further hit to the sector has come from the removal of the incentives to buy plug-in hybrid vehicles.
“Diesel sales fell 36.0% in January 2020 as they continued to be impacted by environmental concerns and uncertainties over government measures to counter this.”
Private new car sales down sharply in January
“Private new car sales plunged 13.9% year-on-year in January 2020 to 61,717 vehicles.
“Sales had previously edged up 0.1% year-on-year in December 2019 after substantial drops of 6.1% in November and 13.2% in October.
“Private new car sales fell 3.2% over 2019, following a decline of 6.4% in 2018.
“Consumers were clearly cautious through 2019 in making the major purchase of a car amid major political and economic uncertainties, despite improved purchasing power and elevated employment levels.
“It is still early days to see what impact December’s decisive General Election result and clarity on the UK exit from the EU on 31 January with a deal has on consumer behaviour.
“There has clearly been an immediate lift in consumer confidence according to a number of surveys. GfK reported consumer confidence rose to a 16-month high in January 2020 from the past November's equal lowest level for 2019 (and since mid-2013).
“However, it remains to be seen if this improvement in confidence is sustained and whether or not it translates into greater willingness to spend.
“The fundamentals for consumers are likely to be pretty decent over the coming months, although annual earnings growth is unlikely to match the 11-year high of 3.9% that was seen in the three months to July 2019, and employment growth will probably be lower overall in 2020 than in 2019.
“Average earnings growth moderated to 3.2% in the three months to November and we suspect it is likely to stabilise around this level. We also expect that employment growth will be relatively modest over 2020.
“However, in good news for consumer purchasing power, consumer price inflation fell to a more than three-year low of just 1.3% in December 2019, and we suspect it will remain low over 2020 – averaging around 1.5%.
“From April 2020, some consumers will benefit from the end of the four-year freeze on working-age benefits. It has also been announced that the National Living Wage will rise 6.2% in April.
“There are other factors which may limit consumer spending. In particular, with the savings ratio relatively low, many consumers may be keen to avoid dissaving. Additionally, lenders have become more careful about advancing unsecured credit.
Fleet sales down in January
“New car sales to the fleet sector fell 2.2% year-on-year in January 2020 to 84,618 vehicles.
“This followed a gain of 7.3% year-on-year in December 2019 when it is possible that fleet sales may have experienced 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.
“Fleet sales rose 0.8% over 2019. For much of the year, businesses appeared to be cautious over making new car purchases as they were faced by a soft economy together with heightened Brexit and domestic political uncertainties. A number of businesses may well have delayed the replacement of their fleet vehicles.
“While near-term uncertainties have been reduced by December's decisive election and the UK leaving the EU with a deal on 31 January, some businesses could well remain cautious over their fleet purchases due to concerns over how matters between the UK and the EU will develop over the year.
“Finally, new car sales to the business sector – which are now tiny – rose 4.2% year-on-year in January but were limited to 2,944 vehicles. This followed a decline of 34.4% over 2019 to 60,435 vehicles.”