Car sales plunge for the first time in 12 months (UK)

For the first time in 12 months, sales of new cars have dived by 13.2% in July, to 136,446 units. This follows 12 successive monthly rises, however, the market still remains up 15.1% for this year compared with 2009.

The SMMT (Society of Motor Manufacturers and Traders) said the figures are barely surprising since sales during the previous 12 months had been stimulated by the Government's scrappage scheme which offered participants a £2,000 reduction when they traded in their old cars.

SMMT chief executive Paul Everitt said: “A drop in private registrations compared to the scrappage-fuelled months of 2009 was expected and has brought the first market decline for 12 months. Subdued consumer confidence and a still fragile economic recovery make the outlook for the remainder of 2010 challenging, but a stronger than expected first half means full year volumes are still forecast to exceed 2009's total”.

Nevertheless, the need for diesels and alternatively fuelled cars is still strong. The diesel market share hit a record high of 50.6%, while the alternatively fuelled vehicles (AFV) now has 1.4% of the market. Segment-wise, the MPV and 4x4 class increased, accounting for one in eight new cars registered in July, while, astonishingly, the supermini and city-car segment fell sharply.

Predictably, the Ford Fiesta was the best selling model in July, as it is over the year-to-date. Last year, fewer than 2m new cars were sold in the UK, with the car scrappage scheme drastically improving sales following its introduction in May. The scheme helped to sell at least 330,000 cars.

SMMT said the outlook for the car industry in 2010 remained "difficult to predict". Recent fall in consumer confidence might see car sales deteriorate more throughout the year, according to Howard Archer, chief UK economist at IHS Global Insight.

"The more worried that consumers are, the less likely they will be prepared to splash out on as big-ticket an item as a car. The substantial fiscal squeeze will increasingly hit public sector jobs and consumers' pockets, while households already face high unemployment, muted earnings growth, elevated debt levels and high fuel prices."

But he added that 2010 car sales could be helped by the planned VAT rise, due in January 2011.

Across Western Europe, new car sales fell 18.5% in July compared with the same month a year earlier. Greek car sales dwindled by 62% although Greece has a small car market.

Top 10 sellers:

1 - Ford Fiesta: 6,695

2 - Vauxhall Astra: 4,919

3 - Vauxhall Corsa: 4,714

4 - Ford Focus: 4,208

5 - Nissan Qashqai: 4,136

6 - Volkswagen Golf: 4,082

7 - BMW 3 Series: 3,817

8 - Vauxhall Insignia: 2,941

9 - Volkswagen Polo: 2,897

10 - Vauxhall Zafira: 2,875

Shortages of new cars:

A lack of new cars means customers have to move quickly if they are to beat next year’s VAT rise according to CAP.

There is now a long wait between order and delivery for many new cars after last year’s slump, coupled with the weak Euro, led manufacturers to slow down car production and focus on supplying other countries. In some cases, cars ordered today will not be delivered until after VAT rises to 20% on 4th January 2011, adding £375 to the VAT-inclusive price of an £18,000 vehicle.

The problem is not confined to the usual luxury and exotic car sectors, with many mainstream brands now reporting lead times of several months.

For instance, a Skoda Superb ordered today will not be delivered until mid-November. Some Volvo and Audi models will not be available until further into 2011. Volkswagen is now seeing lead times of 12 – 14 weeks when normally a new car can be delivered in 5 or 6 weeks. KIA is quoting a 2 ½ month wait for a Sorento SUV. Even the common Ford Fiesta is unable to be supplied until mid-September.

While the VAT increase is already unavoidable for some, the situation is also causing headaches for dealers. They now face the challenge of negotiating a part-exchange value today with the new car customer – not knowing what that car will be worth when the deal is finally concluded.

Mark Norman of CAP said: “Anyone with imminent plans to buy a new car needs to move now, especially if they have a specific model in mind because they may already find they cannot beat the VAT increase.

“This is not confined to the more prestigious end of the market but applies to many brands you would not normally associate with long lead times. The need to make enquiries early is particularly urgent if you want optional extras because they will be subject to special factory build, with little or no chance of a suitable car already being in stock.

“Car manufacturers will always focus on the territories where exchange rates create a more profitable environment. What happened last year was that many switched focus to other countries, such as the United States, because of the weak Euro.”

Car sales sky-rocket in India/China:

Car sales in India increased 38% year-on-year to a record high last month, with demand expected to continue to intensify throughout the country’s festive season beginning next month.

During July, 158,764 cars were sold according to the Society of Indian Automobile Manufacturers (SIAM). SIAM has predicted car sales in India to swell 12-13% in the year ending March 2011. The car market grew at an average of 35% in the first four months of the current financial year.

However, capacity limitations, a likely rise in interest rates and supply blockage such as limited components are expected to put pressure on manufacturing.

In China, car demand in July has been slow-moving since March 2009 with passenger car sales to dealerships figuring 946,200, an increase of 13.6% year-on-year. This compares with a 19% rise in June and sales may start to diminish as early as September, according to the Daiwa Institute of Research.

These reductions are due to increased inflation eat into Chinese customers disposable income and the knock-on effect of dealers retaining more unsold cars as demand reduces.

Manufacturers recording increased sales during the April-June quarter mentioned positive sales in Asian markets for the increase, so this drop in India and China – two of the world’s largest car markets – will concern the industry.