- Disappointing news for the automotive sector as new car sales saw a 4.4% year-on-year fall in September, which is a key month due to the change in number plates
- With sales at 328,041, 2020 was the weakest September for new car sales since the introduction of the dual number plate system in 1999
- The 4.4% decline was against a weak base as sales had been relatively poor in September 2019
- The sector would have been hoping for a boost to new car sales in September from a delayed release of pent-up demand earlier in the year and consumers and businesses looking to take advantage of the new number plates
- Private car sales declined 1.1% year-on-year in September and fleet sales were down more at 5.8%
- September’s dip in sales adds to concerns over the outlook for the automotive sector, which have been magnified by uncertainties over the future UK-EU trading relationship and the recent rise of COVID-19 cases
- The EY ITEM Club suspects that the upside for consumer spending will be constrained after Q3 by significantly higher unemployment and limited pay. Additionally, the recent rise in COVID-19 cases and introduction of restrictive measures could magnify consumer caution over making big-ticket purchases such as a car
- Businesses may also become increasingly cautious over the outlook and feel more compelled to delay fleet purchases
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The SMMT reported that new car sales declined 4.4% year-on-year in the key month of September (due to the change in number plates) as they totalled 328,041 vehicles. The 4.4% year-on-year dip came against a weak base as new car sales had been relatively limited in September 2019.
“Indeed, 2020 was the September for sales since the dual number plate system was introduced in 1999.
“With September being the key month in the year for new car sales, the sector will have hoped that there would have been a substantial lift to sales from a delayed release of pent-up demand from earlier in the year, due to consumers and businesses looking to take advantage of the new number plates. New car sales had been negligible in August and May, due to showrooms being closed due to lockdown restrictions, and while they started to be opened at the start of June in England, it was not until July that they were fully opened across the UK.
“September’s year-on-year fall of 4.4% followed a decline of 5.8% in August and meant that new car sales have still only achieved one gain so far in 2020 (11.3% in July). New car sales had clearly benefitted in July from pent-up demand as people who had wanted to buy new cars since March were finally able to get to showrooms across the UK.
“Apart from the restrictions on activity between March and June, a number of other factors appear to have weighed on new car sales as they had started off the year softly: 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. Consequently, new car sales were down 33.2% year-on-year at 1,243,656 vehicles over the first nine months of 2020.”
Private new car sales dipped modestly in September
Howard Archer continues: “Private new car sales eased back 1.1% year-on-year in September to 161,363 vehicles. They had previously fallen 1.7% in August after making 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.
“Consequently, private new car sales were down 28.9% year-on-year over the first nine months of 2020 at 595,717 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 taken a clear downturn as a result of the impact of COVID-19 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 695,000 over April-August (according to Pay as You Earn Real Time Information data) – while others may be concerned about their job security once the furlough scheme ends this month.
“Unemployment is expected to rise significantly once the furlough scheme ends. It remains to be seen how effective the new measures outlined by the Chancellor to support jobs will be.
“Additionally, many incomes have been affected. The latest ONS data shows total average earnings fell 1.0% year-on-year in the three months to July. However, in good news for consumers, inflation is low and dipped to 0.2% in August (the lowest since January 2016). Even so, ONS data shows that real earnings were down 1.8% year-on-year in the three months to July.
“Consumers may adopt a cautious approach to making big-ticket purchases as rising COVID-19 cases reinforce an uncertain economic environment and heightened job insecurity. Despite reaching a seven-month high in September, consumer confidence is still at a relatively low level and substantially below where it was in February.
“On a positive note, the rise in the household savings ratio to 29.1% in the second quarter and 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 also down more in September
Howard Archer continues: “New car sales to the fleet sector fell 5.8% year-on-year in September to 159,081 vehicles. This followed a fall of 5.5% in August and a gain of 5.2% in July.
“Consequently, new fleet sales were down 36.2% year-on-year over the first nine months of 2020 at 622,517 vehicles.
“Finally, new car sales to the business sector – which are now very small – fell a substantial 31.9% year-on-year in September to just 7,597 vehicles. New car sales to the business sector were down 46.8% year-on-year over the first nine months of 2020 at 25,422 vehicles.”
Future UK-EU relationship a concern for UK auto sector
Howard Archer adds: “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 agreement 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 automotive sector.”