New car sales have declined for the seventh month in a row, falling more than 12% in October as worsening confidence among consumers and businesses continues to dampen the market.
The figures show that the car market is on course for its first annual decline since 2011 and will continue to fall next year before stabilising in 2019, according to the Society of Motor Manufacturers and Traders (SMMT).
The industry body said car registrations dropped 12.2% year-on-year to 158,192 last month – the second double-digit decline this year. It is an acceleration from the 9.3% fall in car sales in September, the first time the market had declined in September in six years. In April, sales plummeted 19.8% after an increase in vehicle excise duty.
Diesel sales tumbled by nearly 30% last month after the scandal over rigging emissions tests and political rumblings over restrictions on diesel cars. Demand for electric and hybrid cars continued to rise, up by nearly 37% to 8,244, while petrol models posted a small increase of 2.7%.
Mike Hawes, the SMMT chief executive, said: “Declining business and consumer confidence is undoubtedly affecting demand in the new car market, but this is being compounded by confusion over government policy on diesel. Consumers need urgent reassurance that the latest, low-emission diesel cars on sale will not face any bans, charges or other restrictions, anywhere in the UK.”
Alluding to last year’s Brexit vote, the industry body has blamed business and political uncertainty for reduced buyer confidence, deterring households and businesses from big ticket purchases.
Ana Nicholls, automotive analyst at the Economist Intelligence Unit, said: “It’s not just a question of drooping consumer confidence – the economics of the car market have also changed in the past few months. With the pound so low, carmakers can no longer afford to use the kind of discounting and offers they have been using to keep the market buoyant.”
She said the Bank of England’s interest rate rise last week would not help either, with 86% of all cars bought on credit – many of them on personal contract plans – and total car loans now amounting to nearly £60bn.
A recent bleak survey from the CBI sounded the alarm on the state of the high street. It showed retail sales falling at their fastest rate since the height of the recession in 2009 in October, as rising inflation squeezed Britons’ spending power. A few days later, Britain’s biggest clothing retailer Next reported a fall in October sales and warned of “extremely volatile” trading.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said: “Car registrations still are falling at an alarming rate, highlighting how reluctant consumers currently are to make financial commitments.
“Worryingly, sales are falling rapidly even though generous discounts are available for buyers trading in old, high-polluting diesel vehicles. Most manufacturers’ diesel scrappage schemes are set to close at the end of this year ... The downward trend likely will be amplified by increases in personal loan rates in response to last week’s Bank rate hike. Accordingly, the outlook for car sales looks bleak.”
The SMMT figures showed demand from businesses and fleet orders dropped 26.8% and 13% respectively last month. Dealers reported 10% fewer private buyers taking delivery of new cars in October.
This means that the overall market is down 4.6% this year so far on 2016 levels, with more than 2.2m cars registered. The SMMT forecast that the market would end the year at 2.56m vehicles – a 4.7% decline, with a further decline of 5.4% next year.
The van market also declined by 7.4%, another sign of the drop in business confidence. Sales of smaller vans tumbled by 20%.
Howard Archer, chief economic adviser to the EY Item Club, said: “Businesses have become more reluctant to replace or add to their fleets amid weakened economic activity and a highly uncertain outlook.”
He said the Bank’s rate rise could “weigh down on car sales – possibly more through affecting consumer and business psychology rather than the actual increase in car loan rates which will likely be limited”.
Richard Jones, managing director of motor finance provider Black Horse, part of the Lloyds Banking Group, was more sanguine. He said the car market was moving to a “more sustainable position” following years of strong growth.
“In the longer term this correction in sales is positive for the market, and should reduce concerns of new car oversupply impacting negatively on used-car values. We must also remember Brexit has already had an impact on the UK car market through the fundamental shift in the exchange rate which is impacting car prices, making the market correction even more understandable.”
