Published Tuesday 15th January 2019
Earlier this month, it was confirmed that UK car sales for 2018 dropped at their fastest rate since the financial crisis. According to The Society of Motor Manufacturers and Traders (SMMT), new car registrations in the calendar year totalled 2.36 million, down from 2.54 million in 2017. The 6.8% drop in sales is the worst since 2008 (11%) and signals the second consecutive annual decrease following the 2016 peak of around 2.7 million.
A combination of regulatory changes has contributed to this substantial drop in performance for the sector. However, the car manufacturing industry is one of many to be hit particularly hard by economic uncertainty concerning Brexit. With the layout of the future trading relationship between the UK and the EU still unclear, the car industry is in a particularly dangerous position as 2019 begins.
A Collapse in Diesel Car Sales
Something of a rarity in recent UK industry statements, the Chief Executive of the SMMT did not mention Brexit in his statement accompanying the organisation’s report. Instead, his focus was pointed clearly at government regulations. He said that the figures “should act as a wake-up call for policy makers,” and that “supportive, not punitive measures” were needed to promote growth.
The automotive sector has faced many threats over the last few years, particularly concerning environmental standards and regulations. The impact of this was felt strongly in the diesel car market last year, which saw a nearly 30% drop in annual sales compared to 2017. December was the 21st consecutive month of falling diesel sales which were, by a long way, the biggest contributor to the year’s decline; petrol and alternate-fuel vehicles saw slight growth year-on-year, but the size of the diesel decline has shrouded this.
According to the SMMT, this is down to “anti-diesel rhetoric” and government regulations designed to curb this part of the industry. The general public has long perceived that diesel cars are more polluting for the environment than other fuel types. This has led to many governments, under pressure from other green initiatives, to put forward plans to limit the use of these vehicles. The new vehicle testing regime is an example, and the expectation that strong laws will eventually come into force has stopped consumers from buying new diesel cars.
This industry pause, the SMMT says, is having the opposite effect on environmental standards. They state that modern diesel cars are just as effective regarding minimising emissions as other fuel type vehicles. However, with consumer confidence dented by constant speculation, people are sticking with their old cars which are not as environmentally sustainable.
Brexit: A Cloud over UK Car Manufacturers
The problems outlined in the diesel sector hint to wider issues for the vehicle industry as a whole, which, in turn, echo broader market concerns. Brexit continues to dominate much of the UK business market in negative ways, and whilst the SMMT does not explicitly mention it, low consumer and business confidence is noted as a key factor in annual performance.
Brexit has hit big-ticket items the hardest, as people and businesses wait on investments until the future financial position of the UK is clarified. This has affected the car industry more than most, as evidenced by a 7.3% annual decline in fleet vehicle sales, the biggest drop when compared to private (6.4%) and business (5.6%).
However, whilst a no-deal Brexit presents the worst-case scenario for nearly all major British businesses, few will be as affected as the car industry. A sector renowned for its ‘just in time’ manufacturing process, a sudden change in the trading regulations between the UK and EU would cause chaos for many global car manufacturers. Expected delays at British borders would create backlogs for many businesses who rely on the UK for parts or assembly, severely impeding the market before any further decline in economic confidence is taken into account.
ERA can help
With the car industry headed for more turbulent times, many businesses are waiting for the future before evaluating their operations. However, a proactive approach can open up new profit margins across what is often one of the most expensive parts of business operations. Here at ERA, we have specialists who have been working in manufacturing procurement for many years, helping companies to refine the supply chains across their vehicle operations. If you are interested in seeing how much money our dedicated fleet management experts could save in your business, why not get in contact with us today?