New car registrations in the UK are declining – just as they are picking up in Europe. The motor industry is a key part of the British economy: could it be further damaged by the Brexit negotiations?
Wind the clock back a few months. Not far. We are not in Doctor Who territory here. March of this year is perfectly adequate. And if selling cars was your game, the newspapers could not have made better reading.
‘Record UK car registrations in March,’ said the BBC.
‘UK car sales speed to new record,’ was the Guardian headline as they reported new car sales in the UK had hit an all-time high. 562,337 new cars were registered in the month, up 8.4% on the same period a year earlier and the best month for sales since the Society of Motor Manufacturers and Traders started collecting data in 1976.
All told, new car registrations in the first quarter of 2017 totalled 820,016 – comfortably a record quarter.
There were also some warnings alongside the good news. March is always a good month for car sales, due to the introduction of new registrations. However, buyers also headed to the showrooms in March 2017 due to the new excise duties coming into force. From April 1st all new cars, apart from those with zero emissions, will be liable for an annual flat rate charge.
The new tax system – set in motion by previous Chancellor George Osborne – is complicated. There is a good explanation here in Auto Express but, in short, ‘most new cars will be subject to a significant increase in their first-year tax demands, after which a flat rate of £140 will apply each year.’
It was widely expected that these changes would lead to a slowdown in new car registrations, and the figures for May did not disappoint, with new registrations down by 8.5% year-on-year as 186,265 new cars were registered in the month. And while more than 1.1m new cars have been registered so far this year, that is now 0.6% down on 2016.
SMMT chief executive Mike Hawes has pointed out that demand is still “at a very high level” and there has also been a General Election to contend with. However, there are clear indications that the industry in the UK is concerned as the Brexit negotiations start, and as car sales on the continent go into overdrive. (I am truly sorry: when you are writing about cars it is almost impossible to avoid dreadful puns. ‘Car sales on the continent zoom ahead.’ ‘Move up a gear.’ Take your pick…)
It is different in Europe regarding car sales
Irrespective of what cliché we use, car sales in Europe are accelerating. New car registrations in Europe were up by 7.6% in May, reaching 1.4m and close to the levels achieved before the economic crisis in 2007. This came despite the UK’s fall of 8.5% dragging the figures down. The big winners were Germany and Spain, where registrations were up by 12.9% and 11.2% respectively. France and Italy were also up by roughly the same percentage as the UK was down.
Worries in the UK
So was the poor performance of the UK car industry solely down to the new taxation rules and the General Election? Sadly not: economics is sometimes called ‘the dismal science’ and step forward this blog’s favourite doom-monger, Samuel Tombs of Pantheon Macroeconomics.
“Year-to-date registrations are down 4.2%,” he said, “Signalling a fundamental decline in new car demand. [It is] weakening because consumer confidence has fallen and real wages are now declining, making households reluctant to commit to big-ticket purchases.”
Clearly, UK car makers are concerned: if domestic demand is falling, then exports of cars made in the UK becomes ever more important – and the SMMT is worried that a deal will not be done by March 29th, 2019, the date when the UK is due to leave the European Union.
Britain’s car makers could apparently face a “cliff edge” if no transitional deal is done with the EU and the industry was suddenly faced with tariffs.
“We accept that we will leave the EU,” said Mike Hawes,
“But our biggest fear is that in two years’ time we fall off a cliff edge – no deal outside the single market and trading on inferior World Trade Organisation terms. This would undermine our competitiveness and our ability to attract the investment necessary for growth.”
He called for an interim arrangement, with the UK staying in the single market and the customs union – presumably with no time limit – until a deal with the EU is finally agreed.
This was a sentiment echoed by Rolls-Royce boss Warren East, who wants as “little change as possible” after Brexit. “The further we get from the status quo, the harder it is going to be,” he said. The company wants to be able to move parts and staff freely between the UK and the EU – which could be ended by leaving the customs union and the single market.
However, Chancellor Philip Hammond – an increasingly influential figure as Theresa May struggles to assert any authority – has reiterated his decision to leave both the single market and the customs union (despite his stated intention to prioritise jobs and business over concerns like immigration).
Why is the car market important to the UK economy?
UK car manufacturing generated £77.5bn of turnover last year and accounted for 12% of all our exports. Car manufacture accounts for 4% of GDP, with 169,000 employed directly and a further 814,000 across the wider automotive industry. In the first 11 months of 2016 nearly 80% of all cars produced in the UK were exported: according to the SMMT, cars built in the UK are exported to more than 100 countries.
Some commentators argue that Brexit will set the UK car industry free to pursue new markets such as China, South East Asia and Eastern Europe: the industry itself appears to be much less certain. Right now, the EU accounts for around half of all UK car exports. The government is committed to getting the ‘best possible deal for Britain’ from the Brexit negotiations: whether that includes the ‘best possible deal’ for the car industry remains to be seen…