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Analysis: Why the UK car market is healthier than it looks


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Car sale
Many are treating themselves to a new car in lieu of a holiday
Sales of new models may be down, but major retailers are espousing a positive view

Given the negativity that has ravaged the car industry this year, the Society of Motor Manufacturers and Traders’ (SMMT) commentary on the 4.4% drop in year-on-year UK new car registrations for September – traditionally the second-strongest month of the year, due to the plate change – was appropriately downbeat.

SMMT chief executive Mike Hawes underlined this mood, emphasising the worst September sales performance this century: “During a torrid year, the automotive industry has demonstrated incredible resilience, but this isn’t a recovery. Despite the boost of a new registration plate, new model introductions and attractive offers, this is still the poorest September since the two-plate system was introduced in 1999.”

It was this position that led the national headlines, the bad news further exaggerated by the knowledge that September 2019 had itself been deemed extremely disappointing, due to some key manufacturers – led by Volkswagen Group brands – not having enough WLTP-emissions-compliant stock ready for customers.

The gloom was based on inarguable registrations data and backed by the prediction that the year will now end 30.6% down from 2019 – a fall of 708,000 units. That’s an estimated loss of £21.2 billion of sales based on industry analyst JATO Dynamics’ estimation that the average car in the UK is sold for £30,000.

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However, the SMMT position tells only one side of the story. In total contrast, talking to a wide range of retail group leaders both on and off the record, Autocar received universal reports of a month of resounding sales success.

“Trading conditions were as strong as I can remember. For us at least, it was a record month for profitability, and it’s possibly the case for the industry as a whole, I would think,” said Robert Forrester. He’s the boss of Vertu Motors, the fifth-largest franchised dealer group in the UK, with more than 120 different outlets spanning mainstream and premium brands, as well as one of the largest commercial vehicle retailers in the UK.

Vertu’s interim reveal the scale of its success: private sales were up 6.3% year on year, Motability sales up 8% and new van sales up 53.3%.

John O’Hanlon, the chief executive of Waylands Automotive, a Volvo dealership group, reported new car sales up 70% year on year and used car sales up 30%, albeit out of expanded premises.

Additionally, he noted that aftersales profits were up 30% and parts sales profits were up 20% as people flooded back to get MOT test and servicing work done, adding further impetus to the retail recovery.

Sean Kelly, managing director of Vines, a family-owned BMW and Mini dealer group, described September as “nuts” and reported that in the early weeks of the month, sales were running up 30% year on year.

So why the contradiction? Neither manufacturers nor retailers are keen to talk about this, but it’s clear that two factors came into play later in September.

Firstly, due to factory shutdowns and manpower restrictions caused by social distancing even in operational factories, there was a stock shortage. Secondly, as a result of that shortage, manufacturers largely (but not entirely) took the decision not to force registrations into the market through profit-eating pre-registration activity (where a new car is registered as a sale but then sold at a discount later on as a nearly new model) and short-term rental activity.

After all, why force volumes at low-to-non-existent profit margins when there’s no pressure from the factories to shift excess stock? Without that pressure, manufacturers and retailers were able to take the opportunity to focus only on profits and to push any further pent-up demand into the coming months, growing a longer tail of orders.

“Put it this way: October looks good and I can just about see my way to Christmas,” said Forrester, emphasising that car retailers tend to live day to day and making such an outlook unusually positive.

O’Hanlon added that the longer societal restrictions look like remaining in place, “the more I’m seeing people looking to ways that are open for them to spend their money”. He explained: “A holiday is off the cards and many people are rewarding themselves with a new car instead.”

So why the tangential reports of the health of the industry? Again, nobody is prepared to comment on the record, but the consensus is that the SMMT is treading a fine line as it battles to keep the automotive industry’s position in the queue should the slim chance that there could be economic incentives available to kick-start the UK economy come to fruition – particularly with the potential double whammy of Brexit costs and trade tariffs from January.

While there are sectors suffering greater economic hardship, there are few if any that have the potential to generate spending and protect as many jobs as automotive.

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“The economic impact of the government’s position on lockdown remains a threat,” says Forrester. “Given that, I can understand why it might be wise to tread a fine line and keep the dialogue open for concessions at a later date.”

Hawes, on the other hand, notes that even with typical pre-registration levels, the market would have been down.

Ultimately, both sides are right. Numerically, it was the lowest September on record. But it’s also clear that from both a manufacturer’s and a retailer’s perspective, the industry has been able to reset.

“If you had told me in March that September would be like this, I would have bitten both your arms and probably both your legs off,” said O’Hanlon.

“What’s key is that we have all been able to reset. We went into this with stock we’ve now cleared, relatively unaware digitally and without a clear view of how to make our dealerships Covid-safe. We have all that and more now. The future is hugely uncertain, but we are now in better shape.”

The European view

UK new car registrations in September were marginally worse than the European average. A year-on-year drop of 4.4% compares with an average fall of just 0.1% across Europe, and a drop of 33.2% across the year to date outweighs the European average of 23.6%.

However, the picture is far from universal. Nations experiencing harsher second waves of Covid-19 have been notably harder hit, the worst of them the Netherlands (-21.9%), Spain (-13.5%) and Switzerland (-11.4%).

Ireland led the countries recording an upswing (+66.3%), followed by Norway (+39.4%), with pent-up demand largely attributed to the uptake.

Analyst LMC Automotive suggested that the UK’s sluggish performance in a critical month highlighted the rocky road ahead and prompted it to lower its forecast for the full year. “The overall picture remains one of a heavy full-year contraction,” it said.

Notably, countries with big government incentives on car sales didn’t all perform strongly. While Italy was up 9.5% and Germany 8.4%, France was down 3.0%.

September 2020 winners and losers

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READ MORE

Worst ‘new plate’ September on record for new car registrations 

Analysis: Are car sales bouncing back? 

New moves: How dealers are trying to stimulate car sales

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