Slight July car registrations increase gives reason to be cautious

Figures released by the SMMT show that UK new car registrations experienced a very slight increase in July, up 0.1 per cent for the month, at 178,523 units. 1,599,159 new cars have been registered so far this year, putting demand in the year-to-date 2.8 per cent higher than for the same period in 2015, following a strong first quarter. Fuelled by a possible inflection point in the market – two years of strong car registrations figures have built up a wave of two-three year old used cars that could detract from new car purchases – and the as-yet unseen effects of the Brexit decision, some are advising a note of caution.

July followed the trend seen throughout this year whereby lower private registrations were offset by fleet purchases, which increased by 5.0 per cent this month. Demand for alternatively fuelled vehicles remained remarkably strong with 24.7 per cent more registrations compared with the same month in 2015.

Mike Hawes, SMMT chief executive, said, “After a healthy start to 2016 and record registrations in 2015 the market is showing signs of cooling. The automotive market is a vital part of the British economy and it’s important that Government delivers the economic conditions which instill business and consumer confidence. With low interest rates, attractive finance options and exciting new models coming to the showrooms, the market still has lots to offer customers.”

Commenting on the figures, Sue Robinson, director of National Franchised Dealers Association (NFDA) which represents franchised car and commercial vehicle retailers across the UK, said: “Despite expected stabilisation in July, UK new car registrations remain at levels not seen since 2004 with specific segments of the market, including alternative fuel vehicles continuing to perform well”.

Robinson continued, “These figures confirm that overall retail sales are going through a stabilisation period following a positive second quarter in which GDP grew by 0.6 per cent with the services sector up 0.5 per cent.

“It is positive to see that alternative fuel vehicles sales remained strong in July, prompted by various benefits including low running costs, lower rates of Vehicle Excise Duty and financial support offered by the Government.

“Many dealers have experienced an improvement on retail demand in July compared to the immediate post-Brexit situation. The UK remains a large market for the EU and performance for the year ahead is expected to be in line with market expectations.”

A note of caution from motor finance firm

Regarding the SMMT car figures for July, Chris Bosworth, director of strategy at Close Brothers Motor Finance, offers a note of caution, saying: “[The] results show a continuation of the slowdown in the growth trajectory of the UK new car market which we saw emerge over the second quarter. The total figure also continues to disguise the increasing difference between the performance of the private sales market (where for the fourth month in a row sales have fallen year-on-year) and the fleet market where growth continues to be seen. It is probably still too early to gauge the effect that Brexit is having on the market as most of the cars sold in July will have been ordered prior to the vote so this may provide an additional headwind across the market in August.”

“One potential side effect from any cool-down in the new vehicles market, however, is a shift by consumers towards the used car sector. According to figures from the Finance & Leasing Association, the used car market in the UK already grew by 15 per cent year on year during the first quarter of 2016, and our own data suggests that July was a strong month for used car dealers. This is a similar trend to that which emerged in the immediate aftermath of the financial crash, where the used car market was boosted at the expense of the new car market. With car production in the UK having sustained somewhat of a golden period in recent years, supply of used vehicles is catching up with demand. This could lead prices to fall, and we could well see consumers opting for well-priced ‘nearly-new’ stock.”