Inside The Industry - ARTICLE - DECEMBER 2021

Same New Vehicle Sales Trends Continue

November new car sales were again marginally ahead of last November. Pure electric cars represented almost 19% of registrations over double last year and diesel dropped to 5% of the market from 14% last year and 50% a few years ago. Many manufacturers are no longer offering small diesel cars.

 For the year with only December to add sales are a miserly 2.7% up on the same period last year but still of course about a third down on the last “normal” year of 2019. Van sales continue to be stronger, almost 10% up on last year for the month and almost 23% up for the year so far. Clearly manufacturers, nobody more than Ford, are putting their limited supply of microchips into cars rather than vans. Reason being that vans are a lot more profitable, as a new van dealer said to me “There’s not much that costs a lot of money behind the seats”.

 Component shortages are biting all over Europe. New car sales in November for Europe as a whole were the lowest for 30 years and 18% lower than last year, a whopping 29% down on November 2019.

 I’ve been asked why the manufacturers or their suppliers don’t simply build some more microchip manufacturers. Apparently simple it definitely isn’t. Semiconductor fabrication facilities as they are known are very complex. The production process involves 1400 steps and requires very special production equipment and a skilled workforce. As a result a new factory takes three years to create at an average cost of around £9 Billion. So I still expect the shortage to reduce the supply of new vehicles well into 2023.

 Currently wait times seem to be increasing not reducing. Ford have recently instructed their dealers not to quote a delivery date for Ranger pick ups. If pressed dealers will say they can’t be accurate but are guessing at more than a year. My response to the dealer was that this would take us into the new model Ranger due to be launched in January 2023. I was told that the new model will be “late, probably very late”!

 And its not just semi conductors that are in short supply. The next worry is a shortage of magnesium. I imagine most of you like me think the only use of magnesium is to make Minilite wheels but much more important it’s a key component in making aluminium. Modern cars use lots of aluminium, in some cases like Jaguar for the chassis itself, in all cases for many other vital components. No prizes for guessing that most of the World supply of magnesium comes from China which a couple of months ago ordered 70% of its aluminium smelters to shut down because of the lack of electricity to power them. Shortage of aluminium is predicted to last through most or all of 2022.

 Shortage Of Electric Recharging Points Getting Worse Not Better

 With sales of electric and plug in hybrid cars growing fast it is disappointing and in fact very worrying that the recharging network is not expanding at anything like the same rate. At the end of 2019 there was a recharge point for every 11 plug in vehicles, now its one recharger for every 16 plug ins. In South Korea the ratio is 3 vehicles per charging point, Holland 5, China 9, France 10, Belgium and Japan 13. The “Range Anxiety” often cited as holding EV sales back used to be about the battery range being lower than customers wanted, now that problem has been largely solved lack of charging points has replaced it as the major concern. The Government is due to announce their strategy for curing this problem in early 2022, it’s a massive task.

 

Surprise Cut In Electric Car Grants.

 In March the grant deducted from the price of a new electric car was cut from £3000 to £2500 and the maximum retail price covered came down from £50000 to £35000. This month the grant was cut again to £1500 and only cars retailing below £32000 are covered. Incentives in most European markets are much higher.

 This cut coming so soon after the fine words at the Glasgow COP Summit have left the industry shocked and angry. Dealers are left with cars coming through ordered to meet the £35000 category but priced at over £32000 so overnight have become much more expensive. Customers with similar cras on order but not yet delivered face a big price increase.

 Retail prices of EVs have been dropping but this trend may soon stop or be reversed. Problem is that price of the Lithium needed to produce batteries has shot up by 300% and prices are expected to keep rising as the mineral remains in short supply. Manufacturers are trying to build batteries with a much lower Cobalt content than previously, because again the price has shot up. Also the main source of supply is the Congo which is politically unstable and suffers from accusations of the use of child labour. Everyone is working on solid state batteries which will be cobalt free and potentially cheaper. If these are not available by 2025 it is no exaggeration to say that meeting Government targets will be very difficult due to consumers finding the cars literally unaffordable. Unless the grants are increased of course?

 New White Lines Needed For Autonomous Cars   

 I’m sure you like me as you drive around will notice that on minor roads many white lines are so worn as to be almost invisible. While that is a problem for we human drivers it’s a bigger one for autonomous or driverless cars. These cars rely on “seeing” the white lines to navigate accurately and safely. It is estimated that half of UK roads aren’t up to the required, standard.

The industry have called on the Department for Transport to carry out the necessary road upgrades as quickly as possible. The DfT have responded by telling the industry they must design and develop vehicles “able to cope with the existing road infrastructure. Therefore a combination of approaches will be needed to detect lanes rather than relying solely on road marking”. So back to the drawing board!

 Meanwhile Tesla got into hot water (again) when it was revealed their latest software upgrade sent automatically to all suitable Teslas enabled drivers to play video games on the central screen whilst the car is in motion, and this can be done when using the autopilot function. This update was in fact sent out in July but only recently became public knowledge. After all hell broke loose Tesla with drew the “upgrade”. The mind boggles at the prospect of a Tesla on autopilot struggling to find visible white lines whilst the driver attempts to beat their current best solitaire score?  

 Agency Model Gathers Pace.

 It now seems inevitable that within two years the majority of manufacturers will be using the agency model rather than the current dealer model. Under agency the manufacturer sets the retail price of new vehicles and this is non negotiable. The “dealer” becomes in legal terms an “agent” who is responsible for advising customers on the best models to suit their needs and budgets, providing test drives and handing over the new vehicle when ready. They will also purchase the customer’s existing vehicle if required and if a price can be agreed.

 In return for all this work and maintaining suitable premises to meet the manufacturer requirement the dealer will receive a fee for every new car or van they hand, this being a percentage of the retail price. As you might imagine dealer opinions vary but most are happy providing the percentage fee is high, whereas manufacturers are happy provided the fee is low. ‘Twas ever thus!

 Tesla currently own all their dealer points and set the prices which are non negotiable and their success has been a big factor in other manufacturers looking seriously at the idea. Volvo are already using it for their Polestar brand and VW for their ID range. Now Mercedes have announced they have reached agreement with their dealers in Germany and the UK to introduce the agency model in 2023. Discussions continue with dealers in other European markets but Merc say they are confident that in 2023 over 50% of their new cars sold in Europe will be supplied on agency terms. Stellantis who now own Citroen, Peugeot, Fiat, Opel and Vauxhall are known to be keen to move to agency, as are Honda. Others are I think happy to watch and observe for a while but you can be sure all have their plans made and ready to go.

 Nothing New

 Those of you who like me live in or near to the Lake District, or are familiar with the area will know that traffic and parking facilities are a hot subject of discussion. The record number of visitors in 2021 as so many people chose or were forced to staycation has brought the subject to the fore with talk of charging to enter the National Park, private cars being banned from certain areas and so on. So I was interested when I stumbled on an article that appeared in The Times in November of 2021, exactly a hundred years ago, discussing the possible banning of “motor coaches” from the Lake District. This question was being discussed by Westmoreland County Council at the time.

 The proposal was that 25 roads in South and North Westmoreland would be closed to motor coaches and other heavy commercial vehicles. Ratepayers were apparently angry about the costs of maintaining the roads for heavy traffic and worried about the further burden on the rates of widening and improving the roads to cope with the increase in this type of traffic. However the Council acknowledged that the visitors who had “in recent years been enabled by the motor coach to penetrate (!) the area without great expense have some claim to consideration, as do the inn keepers and lodging house proprietors whose livelihood depends on this excursion traffic”. Any comments Charles Graves?

 Public enquiries were scheduled for Kendal and Penrith in mid December 1921. It seems clear the dreaded motor coaches were not in fact banned but don’t bet against it sometime soon.

 

Rental Companies Feel The Pain

 In normal times the rental industry takes about 10% of the cars and 15% of the vans sold in Europe. But of course Covid has changed that. First lack of business and leisure travellers reduced car hire demand dramatically. Van demand stayed high though particularly from the parcel delivery sector as people turned to internet shopping. Then as business began to pick up albeit slowly for cars the rental companies found they couldn’t get the new cars and vans they wanted. Manufacturers short of new vehicles because of lack of microchips switched supply from the high discount rental customers to the high margin retail sector. On vans in particular rental companies used to enjoy discounts as high as 50%. Early this year VW stopped taking new orders from the rental buyers. Then in September they said they had unilaterally cancelled all fleet orders. Ford then announced they wouldn’t be supplying any new vans to rental fleets in 2022. However they had thousands of outstanding orders in the system.

 Just before the Christmas break I received a call from the owner of a medium sized van hire outfit we used to source near new vans from (when they used to have such things to sell). I could tell, his blood pressure and heart rate were off the clock. He’d just been told by Ford that they would supply his outstanding orders in 2022 although they wouldn’t take any more. However the discount would be reduced by 12%. This will cost him just over £3 Million! That £3 Million will be a direct transfer from his profits to Ford’s. Then multiply that up over all the rental company customers Ford have.    

 Interesting thing is what happens in the long term. People have long memories and won’t quickly or easily forgive Ford & VW for their actions. One major rental company I know well have for years only bought Ford, Mercedes, and VW vans. They are now buying the Chinese owned and produced Maxus vans. Looks more like a Transit than a Transit does, quality engines from VM Diesels in Italy. All come with things like Air Conditioning and a 5 year Warranty Package. And lots cheaper. We’re supplying quite a few just now to customers who won’t or can’t wait 6-9 months for a Transit. When they get them they like them, and they like the price even more. Will they go back to Ford and VW in the future? Very doubtful.

 Unfortunately all this means is that when you next hire a car or van for whatever reason the rental rate will be higher. Inevitable sadly, your rental company supplier simply can’t pay thousands more for every new car or van they buy and not increase their rates.

  What’s Coming In 2022?

 Impossible to say of course. It all depends on the two Cs, Covid and Conductors (the Semi variety). But let’s have a stab:

 ·       UK car sales in 2022 will be between 1.7 and 1.8 million units. Up on 2021 which looks like ending around 1.63 million, but way below the 2.4 million of 2019.

  ·       Electric car sales will continue to rise.

 ·       New cars and vans will continue to be in short supply at least until late 2022, probably well into 2023.

 ·       Used cars will plateau in value but not drop significantly. Used vans similar. Diesel used cars will be especially sought after due to low sales of new diesels resulting in very high values.

 ·       Chinese manufacturers will begin to launch in the UK to take advantage of their low cost of production and the shortage of new vehicles in Europe.

 ·       Jaguar having cancelled the electric XJ, announced their future will be all electric from 2025, that they will stop selling re-skinned Land Rover SUVs with Jaguar badges or trying to compete with Audi, BMW and Mercedes in the small and medium saloon and estate car segments will detail a new and credible strategy. I hope! Alternatively Jaguar will be closed or sold off cheaply to a Chinese company who can do something sensible with the badge.

 ·       More and more new vehicles will be sold using the Agency system. Customers will like it, dealers less so.

 ·       Manufacturers and dealers will continue to enjoy the increased margins resulting for short supply and therefore much less discounting. However it only takes one to break ranks. Probably Hyundai/Kia who have the productive capacity, aided and abetted by the arrival of Chinese manufacturers.

 ·       At least one part of the VW Group (Audi and/or Porsche) will announce they are to enter F1 when the new engine regulations take effect. They may well buy McLaren to ease this process.

 ·         George Russell will give Lewis a hard time but Lewis will win his 8th title then retire.  

 ·         Toyota will win the WRC again, Elfyn the champion driver. Hyundai will remain in disarray in the early part of the year giving M Sport the opportunity to be the ones to push Toyota hard. Hope I’m right Malcolm!

 Congratulations

 I was delighted to hear that my great friend Ron Palmer has been awarded a Long Service Recognition Certificate by Motorsport UK for his long term support to the motorsport community. I’m not aware who else has received one of these but I’m willing to wager there has never been one so richly deserved.

 In closing may I wish you all a Happy. Healthy and Prosperous 2022. May your Covid Tests be negatives and your Chips be multiple. And enjoy your motoring. As ever I’ve enjoyed writing this drivel every month and hope one or two of you might have enjoyed reading it. For those kind enough to respond many thanks, it makes an old man happy!

Paul Gilligan

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

07785 293222