Inside the Industry January 2024

2023 Year End Report 

New Car Registrations in December were almost 10% up on last December but the previous pattern remained with private sales 14% down and small business sales dropping by a very concerning 47%. Fleet sales were up 33% as manufacturers were forced to use this high discount market to move the metal. For the year as a whole total sales were almost 18% up but private just level, small business marginally down and fleet 39% up. Electric cars took 16.5% of sales for the year and rose to 19.7% in December, still a long way to go to reach the 22% required this year for the manufacturers to avoid heavy fines. The total sales of just over 1.9 Million were still a long way below the 2.4M pre Covid.  

Ford had the best selling car in the Puma and best selling van being the Transit Custom but were 2nd

to VW in the manufacturer’s league table. Ford will undoubtedly drop further in 2024 with no Fiestas left to sell. 3rd

manufacturer was Audi, 4th

BMW 5th Kia and 6th

Vauxhall. In fact if you add all the VW brands Audi, Cupra, SEAT and Skoda to VW itself they total just over 21% of sales against Ford at 7.6%.

 

What Will 2024 Bring? 

Most forecasters are saying they expect the market to go up by another 5% to just about 2 million. I’m not so sure. If interest rates drop as expected that will help by reducing people’s mortgage payments, reducing the cost of car finance, and in my opinion most important of all increasing the confidence of buyers, particularly small business owners. Almost every day we see a small business customer deciding to postpone a vehicle purchase for a while because they are uncertain how they will fare over the next few months. That’s why sales of new cars to this sector were static for the full year of 2023 but dropped markedly in the second half, and the same is happening in the van market. 

One thing that will help and which I think is inevitable is that real new vehicle transaction prices will reduce. This is happening now and I think the manufacturers will be forced to continue the process to keep sales going. List prices won’t reduce but the discounts of various forms will increase. This isn’t just a increase in cash terms, it can be a finance deposit allowance, a low or zero interest rate, free servicing etc. It can also be more pre registered cars and vans available at well below list price, we’re certainly seeing that happening. 

A couple of real world examples in the last week. Last September we supplied a customer with a new Vauxhall Vivaro van. Last week he came back and enquired about another one just the same. We were able to supply for £1400 less than in September. Then I noticed Ineos offering interest free finance on the new Grenadier. I actually ordered one of these, not with any intention of keeping it but rather selling it as soon s it was available as it appeared they would go for over retail price to people wanting to avoid the waiting list. Then Ineos decided to charge a lot more than originally indicated and when people actually drove the vehicle they were often unimpressed and decided not to buy. So no waiting list. I cancelled mine. Now interest free finance, an expensive subsidy with increased interest rates, is being used to encourage sales. I’m sure we’ll see a lot more of this through 2024. So the market may make 2M, but only if it’s forced.

 

Used Car Market 

After significant drops in values last year, particularly in the second half, there was much speculation if this month prices would increase as normally happens in January. I suggested last month I didn’t think so and for once I seem to be right. On average values have dropped gain but not by as much as previously. This is of course an average and there are some cars, particularly clean low miles examples under £6000 going up. Some sectors are dropping significantly. One of the reasons behind this are improved new supply of certain models. One example is Range Rover. JLR have pretty well overcome component shortages that has severely limited the number of new cars they could make. Range Rover Sport deliveries for example were 49% up in December against December 2022. Many of these sales are to people who already own a RR, so suddenly a lot more used ones are traded in and enter the used market. To say used Range Rover values are dropping at the moment is a big understatement, one of my contacts described them as being in freefall.

 

The strength of the used car market is dependent on the same factors as retail and small business new car sales, prosperity and confidence. On balance I’d say used car values will continue to drop overall but not as fast as we saw late last year.

 

How Many New Chinese Manufacturers Are Coming To Th e UK/ 

I’d say a lot more than most of you would think. We already have MG, BYD, Maxus, Ora and Polestar. Definitely or probably coming over the next 12-18 months in alphabetical order are Aiways, Deepal, Exceed, HiPhi, Jaecoo, Lucid, Lynk, Nio, Omoda, Seres, Skywell, Vinfast, Xpeng and Zeekr. So we already have five new manufacturers and there are fourteen more likely to appear relatively soon. All these have two things in common, their products will be largely or completely electric and their cost of production is far lower than their European, Japanese and Korean rivals. 

This invasion is unprecedented. Since 1945 the number of manufacturers represented in the UK has been steady at around 20. As some of the smaller British brands disappeared or were absorbed by a bigger competitor we saw the arrival of French, Germans and Italians to stabilise the number. Then in the 1960 the Japanese but initially only two Datsun (now Nissan) and Toyota to be followed later by Honda and Mazda. Then in the 1990s Hyundai and Kia arrived from South Korea, only two and in fact they are the same company basically. So up to 19 new entrants over a short period is a completely unknown quantity. At the moment those already here are pricing only slightly below the Europeans but how long before they or the new arrivals start flexing their financial muscles to severely undercut the market. Recent research showed that 48% of new car buyers would switch to a new entrant is their prices were between £2000 and £3000 less, and another 41% would switch if the reduction was over £3000. The reaction from owners of prestige cars was similar. The BYD Dolphin currently sells for £25000 in the UK. In native China the price is £13000…………………… 

I’m guessing European car bosses sleep patterns aren’t improved by seeing 19 new competitors able to dramatically reduce prices and customers saying they will buy if that happens?

 

Electric Matters 

Of course if the Chinese are to succeed they are reliant on demand for electric cars increasing. If they reduce the coats of these cars this will happen automatically to an extent as many potential buyers cite the high price of electrics as a major obstacle. But there are other costs to consider apart from the retail price. Hertz Rental in the US recently announced they were to sell around one third of their electric car fleet because of poor used values and the cost of even minor repairs. These 20000 used electrics hitting the market will hardly help used prices. They will be replaced by petrol cars. Hertz also said the initial costs of their Teslas and Polestars were a problem hinting that if Mr. Musk gave them more discount it would help. The cost of repairs also influences insurance costs and now the insurance companies have more experience of these repair prices insurance rates for electric cars are rising, sometimes rising very dramatically. 

And of course range anxiety remains a problem for many potential buyers. By the ned of last year there were supposed to be six or more rapid charges at every Motorway service area in the UK. 6 doesn’t seem to be a lot when there will soon be a million electric cars on UK roads? However only 46 of the 119 service areas hit the target number by December 13. 18 so around 10% of services have no rapid chargers. Four have no electric charging facilities at all!  

Industry leaders are beginning to express doubt. Porsche’s Chief Executive spoke out at the recent launch of the Macan Electric, suggesting that the European ban on ICE powered cars due in 2035 could be delayed. He cited the principal reason as being lack of enthusiasm from car buyers. Meanwhile Toyota Chairman Akio Toyoda pointed out the there are one billion people in the world living without electricity so he felt certain that electric cars would never total more than 30% of Worldwide sales, the remainder being ICE, hydrogen and hybrids.

 

Red Sea Attacks Slow Production & Deliveries 

Volvo and Tesla have recently had to stop production of electric cars in Europe because of component supplies from China being delayed by the attacks on shipping in the Red Sea. Stellantis have resorted to air freight to keep their factories going. Many ships are using the longer but safer journey around South Africa which takes about 10 days more. There are cost implications too, a big freighter apparently uses £1 Million more fuel if taking the longer route.

 

A Couple Of Thing Artificial Intelligence Could Bring To A Car Near You  

If you’re anything like me your understanding of AI, how it works, what it does would be best described as “limited”, but maybe like me you have a nagging feeling that the effects could be enormous and not all good? Well here’s a couple of examples you might find interesting. 

In California a Senator has just introduced a bill which if it passes into California law will using AI to cap car speeds at 10 mph more than the prevailing limits for all cars sold from January 2027. Meanwhile in Japan someone (NTT Data) is developing using AI a system to monitor the capabilities of drivers aged over 65. Initially the system will be used by taxi and logistics companies to ensure their older drivers remain properly capable but I think we can all see where this is going.

 

Financial Conduct Authority To Investigate Car Finance Commissions        

Historically motor dealers and broker shave earned money from finance companies for selling their products to customers. In 2021 the FCA banned commissions based on “Difference In Charges” where for example the finance company said they wanted a rate of 10% per annum and the dealer sold at 12% per annum, being paid the extra he’d negotiated as commission. Before that ban these commissions were a very important part of dealer profits. I knew several dealers who attracted customer by pricing their cars at little over cost but charging high interest rates so finance commission might represent as much as 90% of their profits. The FCA are now looking not only at finance agreements entered into since the 2021 ban but also earlier ones back to 2007 to see if the customer was “disadvantaged”. Needless to say there are law firms who got rich out of PPI claims only too willing to help.

 

Young Drivers Face Massive Insurance Costs 

Anyone who’s renewed their motor insurance recently knows that premiums have only been going one way. And often the increases have been big, I know mine was. Insurance companies blame rising pats and labour prices as well as the increased complexity of modern cars. And now the low miles usage during Covid is in the past accident rates inevitable rise with increased mileages. The worst increases have been for electric cars as discussed above and for young drivers. Some younger motorists have seen premiums going up by as much as £1000 a year to hit £3000 even for those with a clean record. With the price of “cheaper” used car having increased as well it’s very tough for young drivers, which is why so many don’t bother.

 

Driverless Cars To Be Legal by 2026 In The UK 

We haven’t heard very much about this subject recently but the Transport Minister recently made a promise. Well there is an election coming so promises are quite in fashion just now. So by 2026 it will be legal in the UK for a properly equipped car to drive itself on at least some UK roads with no input at all from the driver who will not be required to even check what’s going on. The legal responsibility in the event of a crash will lie with the vehicle manufacturer not the driver. Given there are still arguments raging in the US about the safety of driverless cars I don’t think I’ll give this one any more chance that most pre election promises?      

 

JLR Still Short Of Spare Parts 

Although as mentioned above JLR now have many more components available to build new cars there are still problems in providing the parts needed to keep existing cars mobile. Angry owners have formed various pressure groups so they can band together to put pressure on the manufacturer. Some owners have had their cars off the road for several months and been told there is no guarantee the required part(s) will be available this year! JLR have said the situation is “improving” but acknowledge there are still problems.

 

2023 Charity Challenge 

As those of you who live in Cumbria will know January hasn’t brought the best of weather. Some snow which then froze hard leaving our local roads difficult to stand on never mind walk on. Then two storms in quick succession brought very strong winds and torrential rain. In spite of all this, encouraged by my faithful mountain dog who simply doesn’t notice weather unless it’s very warm, we’re pretty well on target. Just under 200 miles to go and 32 days to do them in. I’m very grateful for the extra day in February this year! 80 miles until we get to Messina and leave the mainland behind.      

Paul Gilligan

pg@gilliganvc.co.uk www.gilliganvc.co.uk

07785 293222