- UK new car sales remained in reverse in early 2020, falling 2.9% year-on-year in February, following a 7.3% year-on-year drop in January.
- Private sales were down in February (7.4% year-on-year) while fleet sales (up 0.1%) were essentially flat
- The drop in new car sales in the first two months of 2020 indicate that the sector has not been a beneficiary from the reduced uncertainties and increased consumer and business confidence since the election and more clarity over the UK’s future relationship with the EU.
- Private sales saw a particularly sharp decline (down 11.7% year-on-year) over the first two months of 2020, suggesting that many consumers are still unwilling to splash out on a new car. A reduction in fleet sales (down 1.4%) suggests that business confidence is also lacking.
- New car sales have been hampered by a number of factors including, consumer and business caution over making major purchases, a sharp reduction in the demand for diesel cars amid environmental concerns and uncertainties over policy and stricter emission regulations affecting supply. A further hit to the sector followed the removal of incentives to buy plug-in hybrid vehicles.
- The automotive sector may also be concerned by the short-term impact to the economy posed by coronavirus and the effect on consumer confidence. March is a key month for the sector when number plates change.
- UK car manufacturers may also be concerned about the potential impact on their supply chains.
- The UK’s longer-term relationship with the EU may also be causing concern for some car manufacturers. While the government is seeking a free trade agreement with the EU that removes tariffs and quotas, the Prime Minister wants less regulatory alignment with the EU. There is a concern that this could result in additional costs and frictions at the border especially for those with integrated supply chains.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The SMMT reported that new car sales fell 2.9% year-on-year in February to 79,594 units, following a drop of 7.3% year-on-year in January.
This followed an overall drop of 2.4% in new car sales in 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 including, consumer and business caution when making major purchases, a sharp reduction in the demand for diesel cars amid environmental concerns and stricter emission regulations affecting supply (another round of emissions testing legislation coming into effect on 1 September). A further hit to the sector followed the removal of incentives to buy plug-in hybrid vehicles.
“Sales of diesel vehicles fell 27.1% in February as they continued to be impacted by environmental concerns and uncertainties over government measures to counter this.
Private new car sales fell sharply again in February after plunging in January
“Private new car sales fell 7.4% year-on-year in February to 34,051 vehicles, following a steep drop of 13.9% year-on-year in January.
“They had previously edged up 0.1% year-on-year in December after substantial drops of 6.1% in November and 13.2% in October. Throughout 2019, sales of private new cars fell 3.2%, following a previous decline of 6.4% in 2018. Consumers were clearly cautious last year when making major purchases, like buying a car, due to uncertainties, despite improved purchasing power and stronger employment.
“The sharp decline in private sales (down 11.7% year-on-year) over the first two months of 2020 hardly suggests that consumers have become any more willing to splash out on a new car, even though consumer confidence has risen during the period.
“Indeed, GfK reported consumer confidence rose to a 17-month high in February since November's equal lowest level for last year (and since mid-2013). Additionally, February’s IHS Markit’s household finance index showed consumers were the most upbeat about their finances since the survey began 11 years ago.
“The fundamentals are likely to be encouraging for consumers over the coming months with employment high and real earnings growth at a reasonable level. Indeed, employment rose 180,000 in the three months to January this year to a record high of 32.934 million, while real earnings growth was a respectable 1.4%
“Nevertheless, earnings growth has been moderate since mid-2019 and therefore, we suspect that employment growth will be lower overall in 2020 than it was in 2019.
“Some consumers will benefit from the end of the four-year freeze on working-age benefits from April and potentially from a rise of 6.2% in the National Living Wage. The Budget could also well contain other supportive measures, including raising the threshold for paying national insurance.
“There are other factors which may limit the consumer spending. In particular, with the savings ratio relatively low, many consumers may be keen to avoid further dissaving.
Fleet sales flat in February after January drop
“New car sales to the fleet sector were essentially flat in February, edging up 0.1% year-on-year to 44,075 vehicles, following a decline of 2.2% year-on-year in January.
“The overall fall of 1.4% year-on-year in January/February followed a gain of 7.3% year-on-year in December when it is possible that fleet sales may have benefitted from manufacturers offering large discounts in an attempt to sell stock ahead of the more stringent CO2 targets which come into effect this year.
“Fleet sales rose 0.8% throughout 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, meaning a number of businesses may have delayed replacing their fleets.
“While near-term uncertainties facing the economy had been reduced following December's decisive election result and the UK leaving the EU with a deal on 31 January, some business caution over making fleet purchases may now be increased by the impact of the coronavirus outbreak and uncertainty over how the UK / EU relationship will develop over the year.
“Finally, new car sales to the business sector - a very small market – rose 29.6% year-on-year in February but were limited to 1,468 vehicles. This followed a rise of 4.2% in January. However, new car sales to the business sector throughout 2019 declined by 34.4% to 60,435 vehicles.”