Global Insight Perspective | |
Significance | 2008 passenger car sales in the United Kingdom fell to the lowest level since 1996 after posting a full year figure of 2,131,795 units, a fall of 11.4% y/y. December's sales fell by 21.2%, which was not as bad as most industry observers had forecast. |
Implications | Following on from the 36.8% y/y drop recorded in the market in November—the largest single fall in the market recorded since 1980—the government's cut in the VAT rate acted as a catalyst to help partially halt this slide in December. |
Outlook | Although December's sales figures represent a marginal recovery in the U.K. passenger car market, the weak macroeconomic fundamentals currently governing the market, including falling house prices and high levels of personal debt, would indicate that the 2009 sales figures will see an more drastic drop in the market. |
U.K. Passenger Car Market Falls 11.4% in 2008
For the full 2008 calendar year the passenger car market in the United Kingdom dropped by 11.4% year-on-year (y/y) to 2,131,795 units, according to the latest data published by the Society of Motor Manufacturers and Traders (SMMT). This figure was in line with IHS Global Insight's latest forecast for the United Kingdom and is the result of the rapid decline in the market following the global financial crisis that emerged in September and October. Business and consumer confidence have been ravaged in the United Kingdom as a result of the crisis and consumers have been reining in spending on "big ticket" items such as passenger cars as a result of fears of over job security and rising living costs. However, in the U.K. market the sales decline actually began in August where sales volume fell by 18.6% y/y and the falls accelerated as a result of the gathering sense of gloom surrounding the global economy, culminating in November's 36.8% y/y slump in sales, the worst monthly sales result in the country since 1980.
The slump in business and consumer confidence that has decimated passenger car sales in the United Kingdom in the second half of 2008 is unlikely to be halted in the short term, with the market outlook for 2009 looking somewhat bleak. This is despite the extensive range of stimulus measures that have been introduced by the government, such as the VAT rate cut, and the Bank of England lowering interest rates to their lowest level, with the base rate at 2%, since the formation of the institution in 1694. This follows a rate cut of 1.5% in November (from 4.5% to 3%) and a 0.5% cut in October (from 5% to 4.5%), meaning that interest rates have been lowered dramatically and quickly in recent months.
Commenting on the 2008 sales result for the U.K. passenger car market SMMT chief executive Paul Everitt said, "The global economic downturn, precipitated by the crisis in the international banking and finance sector, created unprecedented challenges for the UK automotive industry in 2008. The measures taken by government to support the banking sector and kick-start demand have been necessary, but are not yet sufficient to restore confidence. Further action to ease access to finance and credit across the economy is essential if long-term damage to valuable industrial capability is to be avoided. 2009 will be another difficult year for the UK automotive industry with new vehicle registrations and production significantly reduced."
Key Trends
- The new passenger car market in the United Kingdom fell for the eighth consecutive month in December, although the fall in December was less than expected, possibly as a result of the VAT cut.
- The fall in new passenger car registrations recorded in the fourth quarter was the largest recorded all year.
- Diesel market share reached an all-time high of 43.6%.
- Average new car CO2 fell by a record 4.2% to an average of 158.0 g/km in 2008, a total reduction of 16.8% since 1997.
- Demand for small cars continued to fare better than for larger vehicles, with the mini segment recording the only growth in 2008 and the B segment seeing its market share climb to 33.4%, from 32.1% in 2007.
In terms of individual model sales the Ford Focus maintained its customary position as the U.K. market's best-selling passenger car, with 101,593 units for the full-year, just seeing off the challenge of the Vauxhall Corsa in second place with 99,574 units. The Corsa's B-segment rival the Fiesta was in third place with 94,989 units. The Fiesta topped the monthly sales chart in December with sales of 7,204 units as a result of the launch of the latest generation model in October.
Outlook and Implications
Following the horrendous fall in sales volume that the U.K. passenger car market experienced in November, the market showed a better than expected sales result in December, as some unfilled outstanding orders were met, while the cut in the VAT rate to 15% from 17.5% had a positive effect. However, the short- and medium-term outlook is less than positive as a result of the fundamental challenges facing the U.K. economy. Arguably more than anywhere else in the Europe, the United Kingdom's economic growth of the last decade has been fuelled by freely available affordable credit. Last year's banking and credit crisis has put an end to this era and British consumers are counting the cost and reining in spending as a result. As a result new passenger car sales are likely to continue suffering as consumers limit spending on big-ticket items in order to ensure rising mortgage and utility costs can be met. In addition the U.K. automotive industry is being affected by oversupply on every level which is likely to force cash-strapped consumers in need of a new vehicle to the second-hand market. It is all very well the Bank of England cutting interest rates to historic lows but this will make little difference if banks and financial institutions (many of which have already been bailed out by the U.K. government) are refusing to lend money to potential car buyers irrespective of their respective credit history. It is difficult to see much intrinsic improvement in the U.K. passenger car market until the credit markets are properly functioning again and there is a wholesale improvement in business and consumer confidence. As a result for 2009 IHS Global Insight sees the market dropping even more severely, by another 13.2% y/y to 1.887 million new cars. That would mean that in the two years between 2007 and 2009, the United Kingdom will see over half a million units drop out of the market.