According to data released by the Society of Motor Manufacturers and Traders (SMMT) on Thursday, new car registrations rose for the fifth consecutive year in the UK in 2016 and set a new annual record of 2.69 million units, exactly in line with the forecast for the market in the Autovista Intelligence Residual Value Outlook 2017 report. However, full-year growth of 2.3% was at the slowest rate since the market commenced its recovery from its 2011 low and decelerated over the course of the year. In fact, new registrations increased by 5.1% year on year in the first quarter of 2016 but weaker demand since Q2 means that growth already fell to just 3.2% in the first half and had dropped further to just 2.6% for the first three quarters of 2016 compared to the same period in 2015.
The weakness in Q2 could be attributable to uncertainty running up to the Brexit referendum in June but growth essentially stabilised at the same level throughout the second half. Moreover, as a market slowdown was already widely anticipated, a major impact on overall new car demand as a result of the decision to leave the European Union has not been witnessed.
However, demand for new cars amongst private consumers has fallen for nine consecutive months since April and although it remains at a historically high level, it fell in 2016, albeit by only 0.2%. It is therefore the 4.8% growth in fleet registrations that kept the UK’s car market in positive growth territory in 2016. Furthermore, whereas the total number of registrations grew every month in 2016, except in June, which may well have been because of an isolated destabilising impact of the referendum on the 23rd of the month, the volume of registrations in December 2016 was 1.1% lower than in December 2015. Crucially, registrations to private consumers slumped by 5.5% in December and even fleet sales contracted by 0.8% year on year. It is still too early to say if December was merely a blip and the enticing portfolio of new models and the attractive packages on offer to finance them remain positives. However, economic and political uncertainty persists as a result of the turbulent Brexit process and cars - and consumer goods in general – are increasingly subject to price rises as a result of the devaluation of the pound, buffeting consumer confidence. Given that 85% of cars sold in Britain are imported and highly susceptible to currency movements, the market outlook is, on balance, undoubtedly more bearish than bullish.
Mike Hawes, chief executive of the SMMT has been keen to play down the impact of the Brexit vote, saying that: ‘We’re talking about a market that is at peak demand, following the sector’s resurgence after the recession.’ However, even he concedes that ‘2017 may well be more challenging as sterling depreciation raises the price of imported goods’ and has reiterated concern about the future, especially as far as trade agreements are concerned: ‘Looking longer term, the strength of this market will rest on our ability to maintain our current trading relations and, in particular, avoid tariff barriers which could add significantly to the cost of a new car.’ Ultimately, even the SMMT predicts that the UK new car market will contract by 5 per cent in 2017.
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