Auto Sector Current Scenario- UK New Car Sales Post 35 Per Cent Drop in June

Summary

• SMMT: New car registrations in UK plummeted by nearly 35 per cent in June 2020
• Conventional engines are losing out their market share
• The electric and hybrid vehicles recorded triple-digit growth in terms of new car registrations for the month of June
• The UK auto sector witnessed a restart as demand seems to rise from the rock bottom levels with customers finally collecting their pre-crisis orders

No industry has been left unscathed as the novel coronavirus swept through the United Kingdom. According to latest SMMT data, the monthly vehicle registrations crashed to 0.15 million in June 2020 as compared to a corresponding figure of 0.22 million vehicles registered during June 2019. Lockdown measures forced the non-essentials retailers including car dealerships to close. As the virus spread, almost all factories in the UK halted production both to protect their workers and in anticipation of sales crash.

The automotive industry has been facing extremely difficult times and this is not just because of the deadly pandemic. Other factors that have caused hardships for the UK auto industry are no-deal Brexit scenario, and a compulsive shift to hybrid and electric vehicles.

A drastic reduction in new vehicle registrations

As the market began a tentative restart last month after more than two months of lockdown, the new car registrations in UK plummeted by nearly 35 per cent in June 2020, as compared to their monthly levels in June 2019, according to figures published by the apex trade body, SMMT (Society of Motor Manufacturers and Traders). The drop in new car registrations in June was less severe in comparison to that of May 2020 (90 per cent).

Also read: UK Car Production Decline By 95.4%, The Country Produces Just 5,314 Vehicles in May

Monthly vehicle registration in Britain for June 2020 (by fuel type)

(Source: Society of Motor Manufacturers and Traders, UK)

Notes: BEV – Battery Electric Vehicle, PHEV – Plug-in Hybrid Electric Vehicle,

HEV – Hybrid Electric Vehicle, MHEV – Mild Hybrid Electric Vehicle

The maximum drop in the new car registrations was seen in the diesel-powered vehicles in the month of June 2020. This drop was followed by petrol powered vehicles. The reduced numbers imply that conventional technologies are losing out their market share. However, the electric and hybrid vehicles recorded triple-digit growth in terms of new car registrations for the month of June 2020.

Monthly vehicle registration in Britain for June 2020

(Source: Society of Motor Manufacturers and Traders, UK)

The private demand was more resilient in comparison to business vehicles for the month of June. In the light commercial vehicle (LCV) segment, the sales dropped by a quarter during June 2020, as compared to the same month last year.

The sector witnessed a restart as demand seems to rise from the rock bottom levels with customers finally collecting their pre-crisis orders. It is pertinent to note that almost 80 per cent car showrooms in England reopened from 1 June 2020. On the other hand, the car showrooms in Wales and Scotland are slated to remain closed until the end of July 2020. As most of the auto sales showrooms reopen in Britain, the sector is expected to release the pent-up demand, that was put on hold during the lockdown period. At the same time, consumer confidence is looking weak for buying new cars, with coronavirus pandemic related uncertainties still in place.

During the first quarter of 2020, the luxury carmaker, Aston Martin Lagonda Holdings Plc (LON:AML), recorded a slump of 45 per cent in sales in contrast to same period previous year (2019). The company managed to sell only 578 cars to dealerships during the first quarter of 2020. The company saw a sales decline of 86 per cent in the global market for automobiles, China. The company incurred losses of nearly £120 million during the same period of January to March 2020. Another premium car manufacturer, Jaguar Land Rover witnessed its sales plummeting by 85 per cent in China early this year.

Also read: Covid-19 Impact: UK’s Car Industry Likely to Axe 16.66 Per Cent of Workforce

Although, the onset of the virus might be simply delaying new car purchases, many people might not be able to afford a new vehicle even in the current scenario when the lockdown is lifted. Many people instead would probably look to make a purchase on the used car market. This could be severely damaging for the growth of the auto sector in the UK. Moreover, this is an awkward time for the auto sector as it is poised to face a plethora of uncertainties with respect to Brexit, Covid-19, and transition towards a lesser carbon future.

No-deal Brexit troubles

Most of the components used in car manufacturing are sourced from the neighbouring countries and Brexit may well disrupt the supply chain. There is no clarity in terms of trade deals, not only with the European Union but with other countries as well. Free flow of technology and workforce is important for the industry.

The British automotive industry was headed for choppy waters with the Brexit and shift to cleaner technologies. The situation was further worsened by the outbreak of the deadly pandemic. To make the situation even more challenging, the government may only be able to offer limited help to keep businesses afloat as has already poured in billions of pounds to protect many sectors of the economy, including the automobile sector.

Shift towards electric and hybrid vehicles

The auto industry is also facing another challenge, which is the undeniable shift it has to make to the electric and hybrid vehicles. As car makers respond to market and legislation changes, they have invested billions in these greener technologies, but margins are quite thin in this segment, which could make automakers struggle to breakeven or make similar profits like before.

SMMT has called for a dedicated relief package for the resurrection of the automotive sector. The sector is expecting government aid in terms of ease of access to funds, reduced business hours, tax cuts, and instilling consumer confidence by rolling out new policies. With the support of investment, which is needed to switch to a greener future, the sector is likely to go for a sustainable reboot.

According to media reports, a new car scrappage scheme is likely to be rolled out in July 2020. The car buyers would be offered discounts of up to £6,000 on buying new hybrid and electric cars and scrapping their conventional liquid fuelled cars. These schemes would not only boost the economy but also set an example for other sectors to roll out environment friendly schemes in the post-Covid era. These kinds of policies could spark investment and growth opportunities for the sector.

Also read: UK to Announce New Car Scrappage Scheme in Favour of New Technology Vehicles

Finally, the car sales were down in June 2020 due to corona pandemic-led crisis. It is likely to continue for some more time, as the consumer confidence is still low and not much uptake in new car purchases can be expected very soon. Moreover, with the prospect of a no-deal Brexit, UK must expedite the free trade agreement with the United States and Europe. Liquidity injection and lesser tariffs could act as potential growth catalysts for the sector and eventually lead to more investments. These measures would help the sector in making major strides towards a zero-carbon future. With FTA’s in place, the industry could be back to pre-crisis levels in just five years, according to the SMMT.