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Customer LoginsUK passenger car market shows steady growth with 2.5% increase in May
UK sales are continuing on the steady growth track seen in April as the market gets ready for the country's vote on EU membership at the end of the month.
IHS Automotive Perspective
- Significance: The UK passenger car market has continued on its forecast steady growth path in 2016 with another low single digit rise with a 2.5% y/y increase in May to 203,585 units, according to the latest data released by the SMMT.
- Implications: The UK market is continuing on a steady growth path after the record monthly sales for the March plate change and given the very high base level of sales, this is about all that can be expected for the market at this time.
- Outlook: The industry in the UK, both in terms of sales and production, is facing a period of uncertainty as the country nears the referendum on the UK's membership of the EU on 23 June. A vote to exit the EU has the potential to considerably disrupt consumer confidence and the results will be watched with interest by OEMs and dealers alike.
The UK passenger car market continued on a similar stable growth track in May as in April, after market pyrotechnics seen in March as a result of the bi-annual plate change. According to the latest data released by the local industry body, The Society of Motor Manufacturers and Traders (SMMT), the market rose by 2.5% year on year (y/y) in May to 203,585 units. For the combined year-to-date (YTD) tally for the January to May period the market rose 4.1% y/y to 1,164,870 units. The fleet market was the main driver in May with an 8.8% y/y increase in demand during the month, while interestingly there was a corresponding reduction in private sales with May's tally of 89,094 units comparing to the figure of 91,811 units that the market posted at the same point last year.
Ford held its customary position at the top of the brand sales chart in May but its volumes actually fell in comparison to the overall market, down by 2.2% y/y to 23,740 units. The Fiesta once more was the market's best-seller with volumes of 8,236 units during the month, while the Focus was third on the list of best-sellers with sales of 5,664 units. Second-placed Vauxhall enjoyed something of a miserable month and indicates the firm is pulling back on incentives and heavy discounting on the showroom floor and instead is concentrating on maintaining pricing on flagship products like the new Astra which has been well received by customers and reviewers alike. As such the brand experienced a 21.3% y/y decline in sales during the month the 16,300 units, which in turn dragged down the YTD tally by 4.5% to 107,369 units. The Corsa and Astra were fourth and sixth in the best-sellers list during May with sales of 4,882 and 3,880 units. Vauxhall just beat Volkswagen (VW) into third spot as the German brand's sales also underperformed the market substantially during the month, with a 7.3% decline to 16,050 units. The Golf remained a very strong seller and was second overall in the best-sellers list with 5,729 units, despite the current Mark-7 variant being due for a midlife refresh. The premium brands are where a substantial portion of the growth in the market is currently being generated. BMW was fourth overall with sales of 15,423 units, which represented an uplift of 26.3% thanks in part to strong sales momentum for the new X1. Likewise Mercedes managed an accelerated increase its sales during May by 20.8% y/y to 13,721 units.
Outlook and implications
The slowing of private demand in the market in May is perhaps one of the first signs of consumer anxiety at the prospect of the potential "Brexit". As things stand at the moment the market is already seeing something a two-speed development with premium brands showing accelerated growth while the mainstream brand mainstays of the market are contracting, while there is a corresponding split in demand patterns between private and fleet buyers. It appears that the likes of Ford, Vauxhall and VW are being more aggressive in terms of attempting to maintain pricing as opposed to pushing outright volumes with discounts and incentives, with Vauxhall leading this trend. This is all well and good but when there are more and more products from premium brands being aimed at traditional mid-market segments, it is a tactic that has obvious drawbacks. One of the likely factors in favour of the ongoing positive development of the market is the fact that the Bank of England looks unlikely to raise interest rates until well into 2017 and will then act only gradually, although fiscal policy will be tighter during 2016 and 2017.
In terms of the wider macroeconomic forecast, IHS's expected GDP growth in 2016 was trimmed in May to 1.8% (from 1.9% in the April forecast). This assumes the UK votes to stay in the EU and that this will underpin a clear pick-up in economic activity in the second half of 2016. Positively for growth, ongoing low commodity and oil prices should keep UK inflation (0.3% in April) low, thereby supporting consumers' purchasing power along with high employment. However, wage growth has relapsed, but it should ultimately make renewed gains amid a tightening labour market. Muted oil and commodity prices will also help companies' margins, which should be supportive to business investment along with generally healthy company cash positions and decent credit conditions. Additionally, a tighter labour market and April's introduction of the National Living Wage could increasingly encourage companies to invest in plants, equipment, and production processes to try to save labour. Furthermore, the GB pound's appreciable overall easing so far in 2016 should help UK exporters, although they are likely to be hampered by muted global growth until later in 2016. We currently forecast UK GDP growth improving to 2.4% in 2017. However, it should also be noted that IHS has stated that it will cut the UK's GDP growth forecast if the UK votes to leave the EU in June, and this is likely to have a negative knock-on effect for the passenger car market forecast. For the time being IHS Automotive is forecasting a market rise of 2.7% y/y to 2,704,025 units.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.