The UK automotive finance market is not immune to wider global changes. For this reason, it was interesting to hear ASE chair Mike Jones’s take on trends around the world in the automotive sector at the recent Apak Global Auto Finance Summit. Graham Filmer writes.
The biannual Apak Global Auto Finance Summit welcomed automotive professionals from around the world to consider developments in the industry.
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ASE chair Mike Jones’s insights set the scene for what is an increasingly dynamic market. While much has been written about the move to electric vehicles (EVs) and new models such as car sharing, Jones’s view is that such shifts may not happen as quickly or decisively as others are predicting.
Falling Sales
A key issue facing the major car retail markets is falling sales volumes. With this comes the problem of overproduction, and the question of how this oversupply may impact values.
It is very easy to view the British car industry in isolation. The BBC website’s headline when summarising the UK’s latest registration data makes the country’s position very clear: “September figures deepen industry gloom”. However, the 2.5% fall in new car registrations in the UK was lower than in the broader European market, and as nothing compared to the dramatic fall in China where sales in the first half of the year fell by 1.6 million units.
- Europe: 8,183,600, down 3.1%
- US: 8,412,900, down 1.9%
- China: 9,932,900, down 14%
Analysing the dramatic fall in sales in China, Jones pointed to themes that exist in other mature markets: macroeconomic slowdown, climate change, the move to alternative-fuelled cars (AFVs) and motor market saturation.
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By GlobalDataWhere China has been helping to absorb the overproduction that has long existed in the world, it appears to have reached capacity.
Arguably worse than that, China has been adding its own production capability, further exacerbating the issue. Based upon China’s sales decline alone, 1.6 million new cars have been seeking buyers this year because, as Jones noted, they will have already been in the production schedule.
The potential source of help to production volumes could be the move to AFVs. There has been a notable move globally by OEMs to switch to AFV production, and this could help to rebalance supply and demand.
AFVs: The White Knight?
Electric vehicle sales are growing strong, but in the coming years are likely to represent a modest percentage of sales.
In the first six months of the year, global sales of EVs increased by 92% to 765,000 units. Impressive in percentage terms, but this represents just 1.7% of total sales. The most notable growth is taking place in China, where market share rose to 4%.
While the switch in OEM production is clear – and that with this will come more models, awareness and confidence, spurred on by incentives or penalties for fossil-fuelled transport – challenges remain.
Right now, Jones is sceptical on the business case for EVs in Europe. Certainly, from a dealer perspective, the reduction in critical after-sales revenue that would follow a move to battery cars represents a very serious issue. EVs are coming, but not in 2020, was Jones’s conclusion.
Car Sharing
Car sharing and options such as subscription models have gained widespread exposure and investment globally.
The issue facing these new initiatives, however, is whether they will displace the car in the near future. Again, Jones was circumspect about the pace of change.
The capacity to monetise and make profits from these new models is an issue. Major players made notable losses in 2018: Uber lost $1.8bn and Lyft lost £0.9bn. Beyond these two market-leading brands, others have come and gone over recent years.
The challenges facing these new operating models are significant. From a regulatory perspective in the UK, current HP/PCP documents do not allow for car sharing, and leasing is geared to a total life cost, not the risks that short-term usage would require under a subscription model.
Jones feels that right now, timing is an issue for these new models, and there are questions about whether public transport might already be best placed to meet what is largely an urban consideration.
What remains abundantly clear is that the established finance sector has yet to embrace these models.
Outlook
Change is coming, as Jones pointed out, but he sees numerous barriers to any significant near-term transformation. In the immediate future, his outlook suggests that change will be a continuation of the “drift” we have seen in recent years, rather than a tsunami.
by Graham Filmer
