Inside the Industry June 2024
Who’s Buying All The New Cars?
To the end of May 827,500 new private cars have been registered in the UK. June should take the total very close to a million. This is over 7% ahead of last year although as I’ve said before this increase is based entirely on fleet sales which are almost 25% up with retail business over 11% down and small business 6% down. Fleets have bought almost 60% of the new cars sold this year.
So amongst the fleets who’s the top dog? Rental companies? Sorry no, they normally takes about 10% of the market. Contract Hire & Lease companies? Sorry wrong again. The biggest buyer taking around 20% of new car sales is a charity. A charity you might not have heard of called Motability. So what do they do with all these cars.
Motability was set up in the 1970s so it’s been going for 50 years now. The purpose is to provide affordable personal transport for those people with mobility issues that mean they qualify for State Disability Allowance. Until Motability came along these people qualified for one of those dreadful pale blue 3 wheeled single seater “Invalid Cars”. The were single seaters so the driver had to travel alone, never able to share the journey with family or friends. If involved in an accident they were literally death traps. It may surprise you that these awful things were in fact built (in large quantities) by AC, who would surely have been better employed knocking out a few more Cobras.
I’m sorry I don’t know who’s idea Motability originally was. It was nothing short of a stroke of genius, and like all such things basically very simple. Disability Allowance at the time was just over £40 per week, now it’s just over £70. Under the Motability Scheme if the disabled person agrees to forego this allowance and have it diverted to Motability they receive a brand new car, taxed (in fact they are exempt from RFL), insured and maintained. All the customer has to pay for is fuel. And if they agree to pay a bit more they can have a better car.
How is this achieved? Well by a lot of big players being persuaded to do something for nothing. First it was pointed out to the car manufacturers that any sales to this market would be purely incremental because virtually no disabled people were buying new cars previously. Thus they agreed to supply at around the same discounts as they gave the major rental companies. Then the banks were persuaded to provide the millions (now billions) needed to fund the cars at base rate, and enjoy some tasty tax breaks in exchange. Next the insurers were leaned on to provide cover on a no profit basis. And guess what it worked. Slow at first as only a few manufacturers were involved and the scheme was hardly well publicised. But gradually it grew until Motability is as I’ve said buying 20% of the new cars sold in the UK. New makes entering the UK saw Motability correctly as a quick route to establishing volume sales. Particularly if those manufacturers had/have a low cost base so can provide cars at very high discounts. Dealers at first cautious or simply ignorant of the scheme are now enthusiastic about the volume opportunity on offer with many employing trained specialists to properly look after these customers. Yes the dealers only get a small commission for handling the sale, but lots of small commissions add up, and Motability customers provide guaranteed service and warranty work.
Of course Motability business isn’t spread equally around the UK. For obvious reasons it tends to be concentrated on the less affluent areas. And manufacturers aren’t evenly represented either. Some aren’t involved at all, some dip in and out using the scheme to move excess stock when required. For example Subaru have just announced they are to start supplying the Motability market again after a break of almost 10 years, reason being they now have increase supply from Japan to move. Some of the new Chinese entrants have been very keen with one MG dealer in a disadvantaged area reporting that around 75% of their sales were to Motability customers.
So as I say a stroke of genius, one in which everyone wins. The manufacturers and dealers enjoy enormous numbers of extra sales albeit at small margins. But biggest benefit by far is that currently 760,000 and rising disabled people can now afford quality, reliable, safe personal transportation that they can enjoy with family and friends.
EU Impose Big Tariffs On Chinese Cars
This has been bubbling for a while but the EU has now announced that heavy tariffs will shortly be imposed on new Chinese cars being imported. The EU Commission has reported that their investigations have shown that Chinese manufacturers enjoy levels of Government subsidies that mean they constitute a threat to EU battery electric vehicle producers. The levels of tariff vary depending on how willingly and effectively the different manufacturers cooperated with the investigation. Those who were “helpful” will be hit with a 21% charge, this covers also European Manufactures who build cars in China and import them into Europe, this being BMW, Dacia and Tesla. Those who were “unhelpful” particularly MG will suffer a 38.1% tariff .
Tariffs are still “under discussion” between the EU and China but will be enforced from July 4th unless any changes are agreed in the meantime. The position of the UK is unclear at present. Certainly no decision has been made and cannot be made until we actually have a Government following the Election on July 4th.
Of course you would expect that with Chinese manufacturers having to raise prices in Europe by between 20% and 38% sales of their cars within the EU will slow, perhaps slow dramatically. Indications are they are unlikely to slow at all. Because indications are the Chinese manufacturers will absorb the tariffs and not increase the prices at all. Which gives you a clue as to the profit margins they have been enjoying up to now if they can absorb a 20%-40% tariff and still be left with a profit!
New Van Prices – Like Catching A Falling Knife!
As many of you know a significant part of our business is the sourcing and supply of new and pre registered commercial vehicles. And just now we’re seeing the very basic effects of changes in supply and demand. Supply is improving quickly and demand cooling result lots of unsold vans around and manufacturers having to drop prices quickly and significantly to help sell at least some. This is happening faster than I’ve ever seen. I was offered a particular van for £22000 + VAT last week. Much better value than it was a few months ago. Today I was offered the same van for £19500 + VAT. That’s a drop of over 10% in a WEEK!
Problem is this raises is one of customer expectations. If you quote a price then a week late call with the good news that there is a further reduction the customer tends to ask “How much less will it be next week?” So we have a stalemate until either the customer is convinced the price will drop no more or his need for a new van becomes desperate. Every dealer I talk to is experiencing these stalemates just now. In the immortal words of the Captain of the Titanic : “Where exactly is the bottom?”
Mercedes Pricing Is Fixed and Non-Negotiable – Isn’t it?
At the beginning of last year Mercedes were the first to introduce the Agency Model whereby the manufacturer sets the selling prices and the dealer sells strictly at those prices and receives a commission for handling the sale. Whilst other manufacturers have flirted with the idea nobody else has taken the plunge yet.
Last week a customer asked me if I could locate a new Merc, retail price was about £70,000. Frankly I didn’t get too excited because I knew under the agency model the prices were fixed and I couldn’t get the customer any more discount than that he could see on the Mercedes website. However I was having a quiet day so I emailed a few of my Marcedes contacts. One came back to tell me that on the model I wanted the website discount from the Retail Price was £5500, which I already knew. Then he went on to say that they recognised that as a Fleet Management Company we would want to get a keen deal for our customer. Therefore he was pleased to tell me he had a further £2500 “under the counter” discount available for “Fleet Professionals”
So much for firmly fixed prices! Looks like the dam is breaking?
Volvo Gives In To Customer Pressure & Brings Back Estate Cars
Just over a year ago Volvo announced that because of lack of demand they would be withdrawing the V60 and V90 estate models from the UK market leaving them offering only SUVs. Many loyal Volve estate owners who hadn’t thought of buying anything else for years were incensed, and told Volvo and their dealers so in no uncertain terms. It is rumoured that complaints were received from several thousand labradors in addition. So Volvo have realised that upsetting the most loyal section of you customer base isn’t that smart an idea and the two estate models are now re-introduced to the UK range.
Maybe it would have been easier to have asked the customers in the first place?
Changes at The Top In Ford Of Europe
The top job in Ford of Europe (FoE) has normally been held by an American, sent over from Dearborn for 2-3 years before being replaced by another similar individual. Makes sense as the US always held the purse strings, even (to Ford) relatively small amounts of extra expenditure required approval from the States.
3 years ago Ford broke with tradition and head hunted Martin Saunder from VW Group to head FoE. He oversaw some of the most dramatic changes ever in Ford’s European operations. Fiesta and Mondeo were ditched as not justifying the cost of replacing them. Focus is to end production shortly. Which leaves Ford currently with two models only, Puma and Kuga plus the tiny volume Mustang. Soon the electric Explorer will hit the showrooms but with prices starting at £40,000 it will hardly be the car that Fiesta, Focus and Mondeo customers will look to.
Martin Sander’s view, for which he must have won the support of his US bosses, was that Ford in Europe should cease to be a volume car manufacturer covering almost all segments of the market, but should become a “prestige” badge selling a more limited range at higher prices. Well in my brief experience this takes a long time and doesn’t always work. It took BMW maybe 30 years for people to forget they made bubble cars and accept them as what they now are. And I have to say millions of Deutschmarks spent on organised and effective motor sport programmes were a vital part of that. Ford themselves have tried, badging the top of the range cars as “Ghia” and “Vignale” only served to drag the name of those previously fine Italian coachbuilders through the dust. Ford bought Jaguar but I can tell you as someone involved at the time they never really understood the value of the brand, or the importance of it’s heritage..
After his 3 years at Ford in which he has overseen these enormous changes in FoE Herr Sanders is moving on again. To just guess: VW Group, a Main Board Appointment this time so a very big promotion on the job he held when he left VW to go to Ford.
If I was a cynic (which of course I am) I’d say this is just reward from VW Group for his achievement in seriously damaging one of their principal rivals. Surely not?
Not All MG Dealers Enjoying The Ride
When the “new” MG Company arrived in the UK a few years ahoy one of the first priorities was to recruit dealers, because unless you go internet only (unknown at the time) without dealers you don’t sell cars. As an unknown manufacturer at the time the big dealers weren’t interested so MG to be blunt had to take what they could get. The fact that Ford were culling their smaller dealers at the time helped, but to start with MG had a network of small dealers almost exclusively in rural locations. As the brand has grown to taking about 45 of the UK market the big dealers have become very interested and the network is now entirely different. Some of the smaller dealers recruited at the start have been “let go” which means contract terminated. And as rising volumes have resulted in more demands being placed upon them some have decided this is no longer for them.
It still came as a shock when last week Summit Garages in Dudley announced they had decided to relinquish the MG franchise. They had been with MG from the start and had several times been judged as MG’s top after ales dealer. Their directors explained that with new car retail business being slow they were coming under intense pressure from MG to make up the shortfall with low margin Motability (see above) and fleet sales. Slow sales have meant stocks of unsold new cars rising, stocks owned by the dealer so high interest charges on the money used to fund those stock have to be paid.
Will MG be bothered? I very much doubt it. They are now an attractive franchise choice for the big dealer groups who are used to operating in the high volume/low margin business. Summit Garage will continue as a MG After Sales Dealer so customers in the Dudley area will continue to enjoy their high service standards. It’s just part of how things evolve I suppose.
Stellantis UK Fire Warning Shot Over Electrics
Stellantis who own Citroen, fiat, Peugeot, Vauxhall etc last week the Government (which we don’t really have just now of course) to task over lack of support for electric car sales. Their UK boss pointed out that the 22% electric market share that is demanded is “About double what the market without subsidies wants to buy”. Yet 22% has to be achieved to avoid large fines. Stellantis have talked about reducing the number of petrol and diesel cars it supplies to the UK to boost the electric share. They have said that if this policy has to become permanent which means reducing the number of dealers for a start. They say that otherwise to achieve 22% they will have to sell thousands of electric cars at a loss which “makes no business sense, and can only in the long term result in car makers going bankrupt”. Stellantis have also said that if the UK Government continues to force them to accept this situation they will also review their UK manufacturing operation, which at present consists of the production of electric vans at Ellesmere Port near Liverpool.
So to meet Peugeot’s demands (which I have no doubt are shared by virtually all other manufacturers even if they haven’t gone public yet) the next Government has a few choices, all uncomfortable:
1. Drop the rule tat electric cars must represent 22% of sales this year rising to 80% by 2030 and 100% by 2035, with manufacturers who don’t meet these targets being heavily fined. This will enrage the various environmental groups and make it difficult or impossible for the Government to claim any Green credentials at all.
2. Offer big subsidies to persuade retail buyers in particular to buy new electric cars. After the first half of the year electric car sales are likely to be about 50,000 behind the 22% target with 170,000 having been sold. So to hit target 270,000 new electric cars will need to be sold in the second half of the year, representing 27% of sales. Tax benefits to company car drivers already provide powerful (and expensive) incentives for the fleet market to go electric so the vast majority of the slack will have to be taken up by the retail market. As this market is likely to be around 400,00 cars or less in the second half of the year sorry the numbers don’t add up. And by the way there is no money for subsidies.
3. Fudge the issue. In the likely event of there being a change in the party in government blame the last lot. Make it clear the 22% - 80% - 100% targets remain in place but to support an industry already suffering from Chinese competition fines to be removed “for the moment”.
Having observed Governments faced with difficult decisions for many years, my money is firmly on the fudge option.
2024/25 Charity Challenge
Not to bore you with my medicals let’s just say things in the last month went from bad to worse including almost a week in hospital. So the 2024/25 Challenge is definitely suspended until further notice. One physio who checked me out yesterday said although I was making remarkable progress since I left hospital about 10 days ago I would NEVER get back to the 4-5 miles a day which the Challenge requires. Sorry she said that to the wrong person. You’ll hear more from me on this subject when I’m close to proving her wrong, not until.
Paul Gilligan
07785 29322