- An unsurprisingly difficult start to 2021 for the UK car sector as new sales were affected by the closure of showrooms during lockdown
- The larger fall in new car sales in January than had occurred during November’s lockdown adds to evidence that the economy is being more affected by the restrictions on activity this time around
- New car sales fell 39.5% year-on-year (y/y) in January with sales of 90,249 marking the weakest January performance since 1970. New car sales had previously fallen 10.9% y/y in December and by 27.4% year-on-year in November
- Private car sales fell significantly in January, adding to evidence of heightened consumer caution (down 38.5% year-on-year). Fleet sales were down a similarly significant 39.7%
- While COVID-19 restrictions have had a significant impact on new car sales, they do not account for all the sector's weakness
- With showrooms likely to be closed throughout Q1, the car sector will be hoping that consumer and business confidence will be buoyed from Q2 by the successful roll-out of COVID-19 vaccines
- Many consumers look to be relatively well placed to buy a car given the high household savings ratios seen over Q2 and Q3 2020. Much is also likely to depend on how well the labour market holds up – especially after the furlough scheme ends in April
- While the UK and EU have come to a Free Trade Agreement, the car sector will face a more challenging environment with extra regulations and other non-tariff barriers now in place
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The SMMT reported that new car sales experienced a substantial drop of 39.5% year-on-year (y/y) to 90,249 vehicles in January as they were affected by the renewed lockdown. This was the weakest January performance since 1970. The y/y drop in sales was substantially deeper than the 10.9% decline seen in December when the fall had been limited by the temporary re-opening of showrooms in some regions after the November lockdown.
“January's fall in new car sales was markedly deeper than the 27.4% y/y fall seen in November. This adds to the evidence that, this time around, lockdown is having a greater negative impact on the UK economy than it did in late-2020. Nevertheless, the impact on activity remains substantially less than it was in the second quarter of 2020 after the first lockdown.
“While COVID-19 restrictions have had a significant impact on new car sales since early-2020, the softness has run deeper than that. A number of other factors appear to have weighed on new car sales: 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, new car sales only achieved one monthly y/y gain in 2020 – 11.3% in July – when there was a strong element of pent-up demand as people who had wanted to buy new cars since March were finally able to get to showrooms across the UK.
“Consequently, new car sales fell 29.4% over 2020 with the total of 1,631,064 vehicles sold being the lowest since 1992. Furthermore, the sales decline of 29.4% was the largest since 1943.”
Private new car sales and fleet sales saw significant fall in January
Howard Archer continues: “Private new car sales were particularly weak in January, falling 38.5% y/y to 37,946 vehicles. This followed a decline of 13.9% y/y in December and adds to signs that consumers are displaying heightened caution at the start of 2021. Private new car sales fell 26.6% over 2020.
“New car sales to the fleet sector also saw a marked, deeper fall in January: they fell 39.7% y/y to 51,002 vehicles after a decline of 8.3% y/y in December. Fleet sales fell 31.1% over 2020.”
UK-EU deal welcome for UK car sector
Howard Archer adds: “Car manufacturers will be relieved that the UK agreed a Free Trade Agreement with the EU. Nevertheless, the UK car sector will be affected by increased non-trade factors in the form of customs bureaucracy and some regulatory barriers. These are seen as a particular issue for industries with integrated supply chains – notably the car sector.
“The car sector will at least be placed to gain some temporary relief with the UK and EU agreeing a one-year grace period in early-January on the filling in of forms on rules of origin.”