OPINION: Dylan Setterfield, of CAP
Recovery in the German car market is likely to end the UK’s cheap new car bonanza, CAP Automotive have claimed.
Hundreds of thousands of UK motorists have this year benefitted from unprecedented deals on new cars, with non-business registrations rocketing by 16.7% as a result.
Soaring sales figures have been spurred by aggressive price deals and other incentives, with manufacturers diverting supply away from struggling European markets.
However, Dylan Setterfield, Chief Forecaster at CAP Automotive, claims there are growing signs that Britain’s cheap new car boom is on borrowed time.
The main threat comes from Germany, where growing signs of a recovery will likely encourage manufacturers to divert more supply to mainland Europe.
German recovery would not only spell fewer cheap car incentives being offered in the UK but could result in longer waiting times here for certain models.
Despite UK registration growth this year, CAP claim manufacturers would rather sell cars in mainland Europe because changes in exchange rates have slashed the profit on every car sold in Britain over the last 12months.
“Take the median, or typical, list price in our database of £25,425 and a manufacturer selling a vehicle for this price in September last year would have returned €32,086,” said Mr Setterfield.
“In contrast, the same vehicle in September this year would have returned €29,646, a reduction of €2,440.
“This illustrates why manufacturers will divert their attention to Europe as soon as they believe the market is picking up there.
“As soon as they see the opportunity for more profitable business elsewhere, there will be a vastly reduced need to offer the kind of incentives to drive new sales in the UK that we have seen this year.
“The signs are that recovery is already beginning to happen in Germany in particular.
“We tracked a stable used car market in Germany during June and July and then a usually predictable drop-off in demand and prices during August failed to materialise.
“This kind of behaviour in the used market is often a precursor to improvements in new car sales.
“And new car registrations there also look to be turning a corner.
“September’s year-on-year registration figures were only down 1.2% compared with -5.5% in August and many observers are now expecting a return to registration growth by the end of the year.
“Not only will UK customers see fewer deals on offer, when European recovery does gather pace, order times will increase for many models.
“Looking back to when demand was increasing in the Eurozone, from late 2009 until 2011 when the Euro crisis left the market in a virtual coma, lead times in Britain grew in some cases to a year or more.
“Pressures on supply could also come from Spain, where a scrappage incentive scheme has just been extended to boost new car sales.
“The recent extension of that scheme prompted a huge leap in September’s registration figures, although any general increase in new car demand looks unlikely in the current economic climate.
“Overall, the picture is of a potential turning point for the new car market in parts of Europe, rather than a definite and sustained recovery.
“But, given that manufacturers are so keen to do more profitable business than they are managing to achieve in the UK, Britain’s cheap new car bonanza is now on borrowed time with the only question being exactly when the taps will be turned off.”