With the official new car registration results for 2018 published this week, we can now start to dive into the data and look back at the key issues that shaped the year.
As we reported on Monday, the overall new car market was down by just under 7%, with 2,367,147 new cars officially hitting UK roads in 2018.
Comparing the first half of the year with the second, the fall was similar, although private buyers fell away further in the second half of the year compared to fleet buyers.
New fuel economy and emissions laws create chaos
The last few months have seen car companies scrambling to comply with tougher new fuel economy and emissions laws, known as WLTP, that came into effect across the EU in September.
This led to several manufacturers and their dealers being caught out with hardly any cars to sell in September, one of the two busiest months of the year. And the last three months have still seen ups and downs, as well as lengthy delays on certain models.
Hardest hit appeared to be the Volkswagen Group (no sympathy there, then). Audi, in particular, saw its sales plummet by 50% in September and October, recovering only slightly to be still more than 40% off the pace in November and December.
Are electric cars stalling?
Growth of electric and hybrid cars has been underwhelming, especially in the last few months, and far below what is needed if we are going to reach the government’s targets of making all new cars hybrid or fully-electric by 2040.
Part of this was as a result of new WLTP fuel economy and emissions laws that came into effect in September. Although introduced as a response to years of car manufacturers gaming lab tests with their diesel cars, the new rules had an unexpected knock-on effect for hybrids.
Several plug-in hybrid models have disappeared from sale as manufacturers have had to re-engineer them to comply with the tougher new laws, and will gradually reappear over the course of teh coming year.
Also not helping in the last few months has been the removal of government grants for plug-in hybrid vehicles, effectively increasing their price by £2,500 overnight. Fully-electric cars also became £1,000 dearer as their grants were reduced.
Diesel stabilises at more realistic level
As you may have noticed from the frantic squealing from various industry mouthpieces over the last couple of years, new car buyers have been shunning diesel cars at a remarkable rate. Less than a third of new cars registered in 2018 were diesels, down from 42% in 2017, 48% in 2016 and 49% in 2015.
It’s worth pointing out that most of this collapse started in the second half of 2017 and continued through the first quarter of 2018. In the last nine months or so, diesel’s market share has pretty much levelled out at just over 30% market share. This seems to be a much more realistic level for a fuel that was never the right choice for most consumers in the first place.
It’s also worth pointing out that, despite the industry’s obsession with blaming Brexit and the UK government for everything, the fall in diesel sales is not a UK phenomenon. It’s a worldwide situation as car buyers all over the globe are deserting new diesel cars in droves.
However, anti-diesel sentiment is being felt most keenly in European countries. This is because we always bought more diesels than American or Asian car buyers, so the fall has been much greater.
Industry reliance on PCP and PCH finance is coming back to bite
About 90% of all privately-purchased new cars are financed at the dealership, usually on a personal contract purchase (PCP) finance agreement. Fleets are increasingly relying on leasing rather than buying their cars outright.
These financing arrangements have been powering the growth in the car industry for the last decade, as buyers sign up for contracts that essentially force them to keep replacing their car on a regular schedule rather than waiting until they actually need a new car.
However, the same finance arrangements are also largely the reason that the new car market has been slowing down in the last two years. Finance companies and dealers are pushing customers into longer terms (usually four years instead of three) in order to keep monthly payments down, which means a slowdown in repeat business and therefore a slide in new car sales.
We’re buying more imports and fewer British new cars
Full-year figures won’t be published until the end of January, but based on the first 11 months of the year it’s clear that fewer new car buyers are choosing a car built in Britain than ever before.
Up to November, UK car production had fallen by 8% compared to the previous year. But production for the local market fell by nearly 17%.
Only about 12% of new cars sold in the UK were built here in 2018, down from closer to 14% in 2017, and it has been trending downwards for a while now.
With considerable concern about the export market after Brexit, the British car industry needs new car buyers to place more importance on supporting our local factories.
How much of a factor is Brexit?
The big issue dominating in the media is, of course, Brexit. It’s been blamed for pretty much every negative piece of news in the last two years, but the monthly registration and finance statistics can’t explain why people make their car buying decisions.
There is so much change going on in the car industry that it’s difficult to know if or how Brexit is affecting new car sales.
There may have been fewer new car buyers in 2018 than 2017, but they have certainly not been afraid of taking on ever-increasing debt to fund their new cars.
We won’t see the full-year results until sometime next month, but all indications are that 2018 will have been another record year for car finance borrowing. If people were genuinely concerned about Brexit, you’d expect them to be taking on less debt rather than buying ever-more expensive cars on PCPs.
The average amount borrowed on a new car has been increasing steadily all decade long, and now sits at around £20,000. This equates to about 39 weeks of average weekly earnings, whereas five years ago the average lending of £15,000 was only about 32 weeks of average weekly earnings.
Despite a decade of austerity and three years of doom-mongering about Brexit, borrowing on both new and used cars has been accelerating much faster than growth in wages (let alone real earnings). Finance companies seem happy to keep lending more and more money to car buyers despite warnings of mass unemployment, recessions and locust plagues.
Regardless of what happens to our economy after Brexit, this is a bubble that will eventually burst.
For the best independent and impartial car finance advice on the internet, always check with The Car Expert:
More car buying links