The UK automotive industry has emerged as a bright spot in Europe this year, and remained on the growth path in October. New car registrations rose 4% year-on-year last month to 157,314 units, marking the 20th consecutive month of growth. The local manufacturing association SMMT has lifted its full-year forecast from 2.22 million to 2.25 million units, which would mark a 10.2% rise from last year’s level.
SMMT Chief Executive Mike Hawes commented: “These sustained rises have been driven by robust private demand, a trend that has given us the confidence to raise our year-end forecast to 2.25 million units – 10% ahead of last year. Looking ahead, we anticipate more moderate growth as the market stabilises.”
Stabilisation is the defining word here. While last month’s market saw growth, it was decidedly more moderate than recent months and marked the first month since February 2013 to fall short of double-digit growth. KPMG’s John Leech, UK Head of Automotive, believes this is a positive indicator. “Today’s numbers suggest that the tremendous growth we have seen in the UK new car market over the last few months is starting to return to a more sustainable growth path. And for the first time in over a year, the three other main European markets have had a similar experience, with new registrations in Germany growing by 2%, France by 3% while registrations in Italy fell by 5% due to a VAT increase taking effect.”
He goes on to note that this level of slower growth “seems much more sustainable especially considering the potential impact the huge growth rates in new car registrations might have on used car prices. One feature of the recent increase in new car retail sales has been the availability of cheap finance from car manufacturer-funded personal car plans (PCPs). Cars sold on a PCP tend to churn faster as they approach their third birthday as consumers are faced with the choice of a large balloon payment to retain the vehicle or a replacement new car on another PCP. It is hoped that a slower pace of new car sales will avert a used car price crash such as the one seen in 2008.”
Leech expects continued growth next year, again at a sustainable level: “With improving UK economic conditions and rising house prices having a positive impact on consumer confidence we continue to forecast that strong private demand will see new car registrations grow by 5% in 2014 and beyond.”
Korean opportunities
The industry’s future development is likely to be influenced in part by a new trade partnership the government is pursuing with South Korea. The UK is already Korea’s second largest trading partner among the EU members. The EU Korea Free Trade Agreement was signed in July 2011 and last year UK exports to Korea reached a new historical peak. This new trade deal should further stimulate commercial ties between the two countries. Vehicles are among the leading Korean exports to the UK, along with electrical machinery, appliances and parts, telecommunication, sound recording and sound reproducing appliances.
The inaugural JETCO (Joint Economic and Trade Committee) was held today, 6 November, during which UK Business Secretary Vince Cable and Korea’s Minister of Trade, Industry & Energy, Yoon Sang-jick, committed to doubling trade by 2020, and doubling Foreign Direct Investment between the UK and South Korea by 2020.
One of the larger trade deals signed at the event involved the automotive industry. Hyundai Capital UK and Santander Bank announced a £20m (US$32.2m) expansion to provide finance packages to buyers of Hyundai and Kia vehicles as part of a scheme that will create 40 new UK jobs.
Cable commented: “Korea will be the 10th largest contributor to world growth over the next five years and companies such Samsung, LG and Hyundai are already global names. That’s why we’re working to making it quicker and easier for British and Korean companies to do business together.”
Megan Lampinen
