We are watching a bit of a car crash in the automobile sector
Comment Martin Flanagan
Nobody can call the falloff in car sales a blip – they are now well down for the eighth month running. It looks an established trend and has obvious negative implications for the wider economic picture.
The worry is that, against the backcloth of weak productivity and an unbalanced UK economy, what has kept the show on the road for the UK has been consumers. They have not minded living on tick, and while not particularly healthy on an individual level it has done the country an unconscious favour at the same time.
Cars have always been one of the holy grails of consumer aspiration, one of the purchases people are most prepared to go into debt for. And so if we have reached a negative inflection point in one of the UK’S most successful industries it will have repercussions. There was an 11 per cent plunge year-on-year in new registrations in November, with private sales and fleet buyers down, the second consecutive double-digit monthly drop.
Is it a Brexit hangover weighing on consumer and business sentiment, and perhaps the latest official forecasts suggesting the UK will only see average yearly growth of a pretty emaciated 1.4 per cent until 2021?
Businesses are not confident enough to invest ahead of an EU exit, while consumers watch inflation outstripping wages.
Probably all three are factors, alongside the uncertain prospects for Prime Minister Theresa’s May’s unimpressive administration.
There can just be a build-up of consumer uncertainty, even vaguely sub-conscious, that may be playing out here.
More specifically, the auto industry has structural as well as cyclical issues. Governments have a downer on polluting diesel, the direction of regulatory travel is clear, but hybrid and electric cars still account for less than 6 per cent of all car sales. Green options are not sufficiently taking up the slack from the huge fall in diesel cars.
In uncertain times it is big-ticket items that consumers first cut back on (think furniture and carpets as well), and it is happening. Offstage noises are also unhelpful, with mounting pressure to restrict car finance deals and unsecured consumer credit before another bubble emerges.
In short, prospects for the industry look bleak.