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UK car sales stall - but it’s not just us

Ed Monk

Ed Monk - Fidelity Personal Investing

There was gloomy news from the UK car industry this morning after data confirmed a 6.5% fall in new car registrations in 2018.

The Society of Motor Manufacturers (SMMT) said it was the biggest slide in new car sales since 2008, when the financial crisis struck.  Some 2.37m new cars were sold in 2018, down more than 174,000 on the previous year and the second successive annual decline.

Various reasons were given to explain the worsening picture - a collapse in the sale of diesel cars following the Volkswagen emissions scandal (and doubts about how diesels will be taxed in the future), a new emissions testing regime that is holding up supply and faltering buyer confidence, not helped by fears around Brexit.

That Brexit line will be getting a lot of attention here in the UK, spurred by the warning from SMMT chief executive Mike Hawes that leaving the EU without a deal is an ‘existential’ threat to the UK’s car-making industry. Car manufacturers rely heavily on ‘just-in-time’ supply chains that would be destroyed by significant delays at ports in and out of the UK.

It would be a mistake, however, to view the UK as the only struggling car market.  Sales are falling around the world as car buyers of all nationalities find excuses not to splash out on a new set of wheels.

In the giant Chinese market, a slowing economy is hurting sales but so is the removal of state subsidies on car purchases, as well as the trade ructions with the US that are making Chinese exports less competitive. Meanwhile in developed economies like the US and UK, environmental regulations and public policy are altering buying decisions as polluting vehicles are taxed more heavily.

Additionally, financial regulators are turning their attention to motor finance, along with other non-bank debt, as a potential next crisis-waiting-to-happen. Tougher lending rules on finance deals - which is a very popular way to finance car purchases - reduces buyer demand.

Car manufacturing, then, is another industry going through a period of potentially profound change, but it’s not all gloom. While diesel sales are slumping, sales of electric cars has jumped 20% - more than 141,000 alternatively fuelled cars were sold in the UK last year and they now account for 6% of new sales.

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