The latest quarterly analysis of the automotive market by captive software specialists White Clarke Group (WCG) and Professor Peter Cooke has warned of “reduced cash flows and challenged profits”
The report – When Will Sustainable Economic Recovery Really Begin? authored by Professor Cooke of the Centre for Automotive Management at the University of Buckingham Business School and available for free download from the WCG website – was released the same day as both the UK economy was technically declared to have left recession and the announcement that 1,400 jobs would be shed by Ford.
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European new car registrations, which stood at 15.1 million units in 2003, peaked at 16 million in 2007, and dropped to 13.6 million in 2011, are only being kept afloat by “unsustainable cut-price deals and wide spread scrappage programmes”, according to the report.
As Gareth Hession, vice-president of research at JATO added recently: “The European car market has shown little sign of improvement in the last quarter and September has been the most challenging month so far this year.”
Professor Cooke, in this magazine in May 2010 and in his report Recession, Scrappage and Sustainable Recovery, has previously warned scrappage and economic recovery are “not always the best of bedfellows” and without such schemes in Germany and the UK, each market would holdd a clearer signal of their diminishing car parcs.
The report underscores the schism between UK and continental attitudes to scrappage schemes with France, for instance, proposing a second round of the programme, something which Business Secretary Vince Cable described on the BBC’s PM programme, 25 October, as both “expensive” and “unnecessary”.
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By GlobalDataRevised mix
In particular, the economic downturn has adjusted consumer choices with the report acknowledging the growth of the small car sector from 32.7% of the market mix across the EU in 2000 to 43.2% in 2011.
The changing mix reflects feelings expressed at the Finance & Leasing Association used car seminar in the summer such as the increasing size of ‘small’ car models and the five-door hatchback now being considered the standard family car by consumers and findings by Experian Automotive which pointed to 0.75% growth in used superminis in Q2, making it the largest used car segment at present.
“Product downsizing suggests lower absolute prices of new cars, offering lower absolute profit per unit for manufacturers and dealers and, in turn, less absolute revenue earning opportunity as cars pass through their life cycles,” Cooke notes in the report.
Mixed revision
Despite UK year-to-date car sales rising 3.3% on 2011, and appearing not to suffer the same fate as the rest of the EU, the report notes volumes are still down by 15% on 2007 pre-recession levels.
As a further example, according to Cooke’s research comparing total cars on the road by brand over five-year periods (2003-2007 inclusive compared to 2007-2011 inclusive), only Alfa Romeo, Audi, BMW, Chevrolet, Hyundai, Kia, Mini and koda can claim to have grown.
As such, the Buckingham Automotive Team is sticking by the estimation of 1.94 million new registrations in the UK for 2012, shared by the Society of Motor Manufacturers (SMMT) at the start of the year. However, the SMMT has since revised its prediction up to two million registrations.
Should the conservative estimate of 1.94 million registrations prove true, and with the UK car market tied to the national financial crisis through finance providers, the report wonders if the current situation “offers manufacturers’ finance houses the chance to grow market share as honest brokers selling finance to fund cars, rather than using it as a means to offer a clutch of other services”.
And should the sterling-euro balance remain and European sales continue their nosedive, the report adds, the UK can expect manufacturing bases in the Czech Republic and Romania to be building more right-hand drive cars and flooding the market with cheaper cars.
Looking to the used market, Cooke is not confident the market supply problem of quality stock will abate within the next 8-10 years and has instead suggested dealers consider a “managed supply chain” of strategic alliances with manufacturers, fleet operators, rental and leasing companies.
richard.brown@timetric.com
