The latest quarterly analysis of the motor finance 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? – is authored by Professor Cooke of the Centre for Automotive Management at the University Of Buckingham Business School and available for free download.
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European new car registrations, which started 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.
The report highlights the schism between UK and continental attitudes to scrappage schemes with France, for instance, proposing a second round of the programme, something which UK Business Secretary Vince Cable described as "expensive" and "unnecessary" on the BBC’s PM programme last week.
Changing mix, dropping profit
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.
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By GlobalDataThe 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.
Falling sales, honest brokers
Despite UK car sales rising 3.3% on 2011, and appearing not to suffer the same stutter as the EU, the report notes volumes are still down by 15% on 2007 pre-recession levels.
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 1.97 million registrations while an extrapolation by Motor Finance from the SMMT September figures would be just shy of 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".
Further analysis of the review by White Clarke Group and Professor Cooke will be published in the November issue of Motor Finance magazine.
richard.brown@vrlfinancialnews.com
