Registrations in the UK new car market rose 10.8% to 2.26 million units in 2013, the highest point for six years. But let’s not get too carried away: while last year’s figures may be exceptional, they also come highly qualified.
New car volumes are still some way short of the record levels of the early 2000s, while the Society of Motor Manufacturers and Traders’ modest forecasts suggest we may have been through a bit of a purple patch post-2008. After a big rally this year, only small gains are predicted for 2014 and 2015.
I have used the word “registrations” rather than new car “sales”. It is widely accepted that franchised dealers and vehicle manufacturers may have self-registered significant volumes of cars which may ultimately be sold as nearly new used cars. This strategy has let manufacturers import significant numbers of cars from under-utilised plants in Europe and elsewhere, boosting market volumes with the aid of exceptional prices and discounts and finance deals. The chart below shows how few cars registered in the United Kingdom are actually made here.
Quite simply, the cars we love to own and drive are largely imported, and yet the United Kingdom still has a successful, internationally owned vehicle manufacturing and assembly industry. Vehicles assembled in the United Kingdom are made primarily for export, largely to Europe, and have a somewhat higher price tag than the units imported.
The next chart compares the average values of imported new cars and exported ones. This differential might well be expected to grow as the Jaguar Land River brand is ramped up for export.
The UK new car market has been in the doldrums during the economic recession, and as would-be buyers regain confidence, so the market is showing signs of picking up. However, this is partly down to factors that came into play during the recession, and which in some cases no longer apply.
For instance, many cars were bought at low cost in 2009-10 as part of the scrappage scheme. Typically these cars were small and lower priced; this is reflected in the above chart’s number for 2009, which shows the scheme’s impact on the average price of imports. As was reported at the time, many of these subsidised units were bought by retired people whose savings were attracting little or even negative interest rates in real terms. However, many of them may yet be retained for a longer period than normal, or until those owners stop driving, because of their extended warranty and low prices.
But despite the scrappage scheme’s aim of getting older cars off the roads, the average age of cars in the United Kingdom is far greater than many would expect. The next chart shows that at the height of the economic boom, the average age was at its lowest – but also that it has since crept up steadily as the recession has bitten. Even with the return of higher registrations, it will be some time before the average age of cars on the country’s roads starts to return to the old profile.
The implications of this ageing pattern should not be underestimated. However well they are maintained, older units tend to have higher emissions than newer models, and the new generation of cars is showing significantly better economic fuel consumption than older units.
The apparently buoyant UK car market therefore has a flip side, in that the number of used cars sold each year is perhaps three times the new car figure: for instance, 6,743,080 used cars were sold in 2012, against 2.04 million new car registrations. A new car is just an aspiration for many drivers, who end up buying a good-quality used car rather than a new one for reasons of price or space. For whatever reason, there has been a significant shortage of younger used cars reaching the market in recent years as new car volumes tumbled. This, is turn, is reflected in higher prices.
And the future? The UK car market is still in a period of catch-up, with private buyers taking advantage of exceptional new car prices and the associated very attractive finance packages. Fleet operators, meanwhile, work to economic replacement cycles rather than the short-term market climate.
What remains is the question of how long this catch-up period will last. Looking at the data over the years, we can assume there is probably a natural demand of between perhaps 2.0 and 2.25 million new cars per year in the UK. Sales above those figures may require a substantial additional effort. Given a gradual recovery of new car sales elsewhere in Europe, vehicle manufacturers may seek to redirect their marketing efforts (and associated finance packages) to other major markets.
Hard Evidence is a series of articles in which academics use research evidence to tackle the trickiest public policy questions.