Car market has shrunk permanently, makers warn

Home working, net zero and shrinking availability of lower-priced models are to blame, says SMMT

THE car market has shrunk permanently since the pandemic as the rise of home working and a shift to net zero hammers sales, industry chiefs report.

Sales of new cars in the UK hit 1.9m last year, the Society of Motor Manufacturers and Traders (SMMT) said, a jump of 17.9pc compared with a year ago but still 17.7pc lower than before Covid hit.

Mike Hawes, its chief executive, said economic and social changes meant families were less likely to want multiple cars in their driveways.

These included the rise of remote working, government policies aimed at making transport greener and the shrinking availability of lower-priced, entry level cars, as manufacturers focus on bigger, more profitable SUV models.

As a result, Mr Hawes said he did not expect new car sales to ever return to their pre-covid peak of 2.69m a year, a record previously reached in 2016.

He said: “You’re seeing people changing their work patterns, more investment in public transport, and all of this is part of decarbonisation, which we support. If people are working from home, does each household need as many cars as they may formerly have had? Things like that, there’s a number of different factors behind it. There’s still room for growth. But I can’t see us repeating that 2.6m figure ever again.”

His comments came as the SMMT revealed the market share of electric cars went into reverse last year, as consumers baulked at high prices and a lack of charging infrastructure.

The lobby group is now urging Jeremy Hunt, the Chancellor, to jump-start demand by slashing VAT on electric car purchases for three years in his next Budget, due on March 6.

This would boost consumer spending power by £7.7bn and result in an extra 250,000 cars being bought by households, the SMMT said.

Electric vehicles’ (EVS) share of the overall new car market shrank from 16.6pc to 16.5pc in 2023. This compares with the 17.2pc originally forecast by the SMMT. The number of EVS sold rose by almost 50,000 to 315,000 in 2023 but this also fell short of the SMMT’S prediction of 324,000 for the year. Petrol car sales were flat at about 1m.

Mr Hawes blamed the EV malaise on stubbornly high prices and warned that Rishi Sunak’s speech on net zero policies in September, in which he delayed a ban on new petrol car sales, was also not “particularly helpful”.

He said: “We need to be encouraging, promoting [EV uptake] as much as we can.”

The SMMT is tentatively predicting market share for electric cars will rise to 22.3pc this year, or 439,000 cars.

So far, EV sales are mainly being driven by fleet purchases rather than private consumers. Only one in 11 cars purchased by private consumers in 2023 was electric, Mr Hawes said.

After Mr Sunak’s revamp of net zero policies, a ban on the sale of new petrol cars has been pushed back from 2030 to 2035, but there are still doubts about whether electric cars will be affordable for a large number of drivers by then.

One decisive force that could push prices down is the growth of Chinese brands in the UK and Europe.

There are about 100 electric car models available and another 30 to 40 are expected to debut this year, many of them produced by such Chinese manufacturers as BYD, Geely and Nio.

Mr Hawes said that with the choice of entry-level cars such as the best-selling Ford Fiesta shrinking, there was a gap for China to capture market share.

BYD last year announced it would begin selling a hatchback, known as the Seagull, with a price tag equivalent to less than £8,000, although Chinese brands typically sell vehicles for higher prices outside their home country.

The carmaker overtook Elon Musk’s Tesla this week as the biggest seller of electric cars.

However, when asked whether a Chinese car could become Britain’s best-selling model within this decade, Mr Hawes predicted that most consumers would still err towards familiar European or American brands.

He said: “That’s what any new entrant needs to overcome and they need to have a dealer network as well. It’s not easy to grow market share rapidly.”