- New sales slipped back in August after posting their first year-on-year increase for 2020 in July when pent-up demand had been released by the re-opening of showrooms
- New car sales dipped 5.8% year-on-year in August after a gain of 11.3% in July. While the UK car sector will have been hoping that August’s sales could have built on July’s gain, it is traditionally a quiet month for new car sales ahead of the key month of September when number plates change
- Private car sales saw a modest dip of 1.7% year-on-year; fleet sales were down more at 5.5%
- The car sector will be hoping that private purchasers and businesses that have waited to purchase new cars due to lockdown restrictions have decided to hold off a little longer to make their purchase in September
- August’s dip in sales adds to uncertainties over the outlook for the car sector – even with the possibility that pent-up demand could provide near-term support
- The EY ITEM Club suspects that the upside for consumer spending will be constrained after Q3 by significantly higher unemployment and limited pay
- Consumers and businesses may adopt a cautious approach to discretionary purchases, given a still uncertain outlook
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The SMMT reported that new car sales saw a renewed drop in sales in August as they dipped 5.8% year-on-year to 87,226 vehicles. This followed a gain of 11.3% year-on-year in July (to 174,877 vehicles), which had been the first increase in 2020.
“The car sector will be likely be hoping that many private purchasers and businesses, who have had to wait to purchase new cars due to lockdown restrictions, have decided to hold off a little longer in August to make their purchase in September in order to get the new number plates.
“In July, new car sales had clearly benefitted from pent-up demand as people who had wanted to buy new cars since March were finally able to go to showrooms across the UK. July’s rise of 11.3% year-on-year in new car sales had followed a reduced fall of 34.9% year on-year vehicles in June, when 145,377 vehicles were sold, as car showrooms were allowed to re-open. Even so, it was reported that one-in-five car showrooms remained closed in England during June while showrooms in Wales and Scotland were not allowed to open to 22 and 29 June respectively. Very few new cars had been sold in both May and April as dealerships were closed. New car sales fell 89.0% year-on-year in May to 20,247 vehicles from 183,724 in May 2019. April saw a decline of 97.3% year-on-year to 4,321 vehicles, the lowest level since 1946.
“Earlier in the year, new car sales had been limited by a number of factors: consumer and business caution over making major purchases, reduced demand for diesel cars amid environmental concerns and uncertainties over policy, and stricter emission regulations affecting supply. Indeed, even before coronavirus, year-on-year drops in new car sales in both February (2.9%) and January (7.3%) had indicated that the sector had not benefited from any reduced uncertainties and increased consumer and business confidence early on in 2020 following December's election. There was a drop of 44.4% year-on-year in the month of March – a key month because of number plate changes – to 254,684 vehicles as coronavirus had an increasingly negative impact on consumer and business behaviour, culminating in the lockdown on 23 March when car showrooms were closed.
“Consequently, new car sales were down 39.7% year-on-year at 915,615 vehicles over the first eight months of 2020.”
Private new car sales dipped modestly in August after recording strongest performance in July
Howard Archer continues: “Private new car sales eased back 1.7% year-on-year in August to 39,833 vehicles. They had previously made the strongest gain in July when they rose 20.4% year-on-year to 79,929 vehicles, indicating that they particularly benefitted from released pent-up demand. This followed a gain of 20.4% year-on-year in July.
“New private car sales had previously seen year-on-year falls of 19.2% in June, 83.8% in May and 98.7% (to just 871 vehicles) in April.
“Consequently, private new car sales were down 35.6% year-on-year over the first eight months of 2020 at 434,355 vehicles.
“While consumers have lifted their expenditure over the third quarter, there is uncertainty as to just how willing and able they will be to spend beyond this. Persistent consumer caution is seen as a significant risk that could limit the UK recovery.
“The fundamentals for consumers have experienced a downturn as a result of the impact of coronavirus on the economy, and they are likely to remain under pressure in the near term at least. Many people have already lost their jobs despite the supportive government measures – as was highlighted by employment falling by 730,000 over April-July (according to Pay as You Earn Real Time Information data) – while others may be worried about redundancy once the furlough scheme ends in October.
“Unemployment is expected to rise significantly once the furlough scheme ends. The EY ITEM Club suspects the unemployment rate could get up around 8.5% around the turn of the year compared to the latest rate of 3.9% in the three months to June.
“Additionally, many incomes have been affected; the latest ONS data shows average earnings fell 1.5% year-on-year in June. Recent good news for consumers has been low inflation, which dipped to a near four-year low of 0.5% in May. Although inflation rose back up to 1.0% in July, the EY ITEM Club suspects that it could get as low as 0.2% over the next few months. Even so, ONS data shows that real earnings fell 2.2% year-on-year in June and was down 2.0% year-on-year in the three months to June.
“Furthermore, consumers are highly likely to adopt a cautious approach to major discretionary purchases given the uncertain economic environment. Consumer confidence currently remains at a relatively low level despite coming off recent long-term lows. On top of this, ongoing concerns over the possibility of a rise in coronavirus cases could magnify consumer caution, which may limit future shopper footfall in the short term.
“On a positive note, four months of net repayment of unsecured consumer debt totalling £15.7 billion over March–June has improved many households’ balance sheets, which will help some consumers’ purchasing ability.”
Fleet sales dipped more in August
Howard Archer continues: “New car sales to the fleet sector fell 5.5% year-on-year in August to 45,943 vehicles. There had been previously been a gain of 5.2% in July to 91,857 vehicles. This followed a fall of 45.2% year-on-year in June to 69,498 vehicles after declines of 93.4% (to 6,638 vehicles) in May and 96.6% year-on-year to 3,090 vehicles in April.
“Consequently, new fleet sales were down 42.6% year-on-year over the first eight months of 2020 at 463,444 vehicles.
“Finally, new car sales to the business sector – which are now very small – fell 57.9% year-on-year in August to just 1,450 vehicles. This followed year-on-year falls of 11.8% in July, 52.6% in June, 81.1% in May and 88.3% in April.
“New car sales to the business sector were down 51.4% year-on-year over the first eight months of 2020 at 17,816 vehicles.”
Future UK-EU relationship a concern for UK car sector
Howard Archer adds: “Further out, car manufacturers will be affected by the form the UK’s longer-term relationship with the EU will take. In particular, car manufactures will be monitoring the possibility that the UK and EU might not reach a free trade arrangement by the end of the year when the transition arrangement ends.
“An issue for the car sector is that while the Government wants a free trade agreement with the EU that removes tariffs and quotas, it wants less regulatory alignment with the EU so the UK is able to diverge in rules and standards. This could mean costs, new rules, and frictions at the border, which will affect businesses with integrated supply chains – notably the car sector.”