As we charge into July, we can look back on the first half of 2022 to review what’s been happening in the new car market and assess the state of play, as well as predict what to expect for the second half of the year.
It’s been another chaotic year for new car sales – the third in a row, all thanks to Covid. The car industry is certainly suffering from its own version of Long Covid as the knock-on effects of the global pandemic continue to wreak havoc on both supply and demand for new cars. Then, of course, just when it looked like things were starting to improve, Vladimir Putin decided to flatten Ukraine with catastrophic results for Ukrainians and broader consequences for the whole world.
How many new cars have been sold?
Just over 800,000 new cars have hit UK streets in the first six months of this year. The first half is usually stronger than the second half, and the Society of Motor Manufacturers and Traders (SMMT) is currently predicting that the full-year total will reach about 1.7 million – although that may be downgraded next month since the market is underperforming against that outlook.
For comparison, last year almost a million cars had been registered by the end of June, however the market collapsed in the second half of the year to a final total of just over 1.6 million by the end of the year.
Year-on-year comparisons are difficult because the last two years have been absolutely chaotic thanks to shutdowns and supply shortages, so there’s little point agonising over the specific percentage increases and decreases each month. But to give you an idea of how much the industry is struggling, the average new car registrations for January to June for the last decade (2010 to 2019) was more than 1.2 million – or about 50% more than this year’s performance.
What does this mean for consumers?
The current problem for car buyers is a serious lack of new car supply. Many of the most popular new models have very long waiting lists – in some cases, more than a year. In some cases, car companies won’t even take orders for certain models because the waiting list is already too long. The most high-profile example of this is Ford, which is currently not accepting orders for either the Fiesta or Focus, two of its best-selling models.
This obviously makes planning your next new car purchase or lease very difficult, as most car buyers have a PCP or PCH agreement with an end date when they will need to change their car. As a result, buyers have been snapping up whichever models are available within the right timeframe, or switching to a used car.
It’s also driving prices up for both new and used cars. With few cars to sell, car companies don’t need to offer any great discounts to lure in customers. They’re also prioritising consumer sales rather than fleet sales, as fleets generally expect discounts of up to 40% in return for ordering hundreds (or even thousands) of cars.
Despite low production numbers, many car companies are actually making more money than they have for years because they’re able to sell their cars at full price. So although it’s making cars more expensive for buyers, it’s creating a more sustainable car industry. This obviously won’t last, and they’ll resume their price wars as soon as production increases again…
Customers are going smaller, greener and cheaper
As we’ve pointed out a few times in recent months, there are some clear trends emerging in the new car marketplace.
Electric cars are continuing to find more and more homes, with the biggest limitation being supply. Despite concerns over public charging infrastructure and the sheer cost of new electric vehicles, the switch to electric power is well and truly underway.
Interestingly, consumer desire seems to be for fully electric cars rather than plug-in hybrids, which are not growing at anywhere near the same rate. There may well be supply issues affecting this, but it’s certainly true that car companies are very much putting most of their efforts into pure EVs rather than part-time EVs.
Budget brands are doing very well, with both Dacia and MG enjoying enormous sales growth against a market that is down 12% year-to-date. This is not just a 2022 story, either, as both brands have seen steady growth for several years.
We’ve discussed this before as well, but cars have been getting ever more expensive for years, while customers’ spending power has been pretty static. As a result, car buyers are tending to trade down to cheaper models when their PCP or PCH contract ends, in order to keep their monthly payments at a manageable level.
We saw a similar thing happen in the financial crisis of more than a decade ago, when then-budget brands Hyundai and Kia started making significant inroads into the UK new car market. If MG and Dacia can replicate the Korean siblings’ success over the next decade, their futures look very bright indeed.
Small cars continue to dominate the UK new car market. The Vauxhall Corsa is gradually extending its lead in the 2022 sales race, looking good to defend its 2021 crown. The Mini hatch also continues to sell strongly despite being near the end of its life, with a new model expected to make its debut next year.
Meanwhile, Ford might be unable to supply new Fiestas but the (Fiesta-based) Puma small SUV is going great guns. The market for mini SUVs is one of the hottest in the new car industry, with pretty much every car manufacturer having something to offer buyers.
Winners and losers in 2022 so far
At the halfway point of the year, the overall market is down about 12% on the same point last year. But within the bigger picture, some car companies are doing better than average while others are struggling.
So far, it’s been good news for Alfa Romeo, Alpine, Bentley, Cupra, Dacia, DS Automobiles, Fiat, Honda, Hyundai, Kia, Maserati, MG, Mini, Polestar, Porsche, Smart and SsangYong. All of these brands have outperformed the market by at least 10% – and in some cases, have done a lot better.
The year hasn’t started so well for Abarth, Jaguar, Jeep, Land Rover, Lexus, Mercedes-Benz, SEAT, Skoda, Subaru, Volkswagen and Volvo. All of these brands have underachieved by at least 10% compared to the overall market.
Overall, Ford is back on top in terms of overall new car registrations for the year to date, after slumping to fourth last year. Kia is second, ahead of Volkswagen, Audi, BMW, Toyota, Vauxhall, Mercedes-Benz, Hyundai and Peugeot.
How is this affecting the used car market?
We’ve now had more than two years of significantly reduced new car production thanks to Covid shutdowns and then supply shortages. With car companies trying to deliver every available set of wheels to paying customers, that’s meant fewer demonstrator vehicles, service loan vehicles, press fleet vehicles, head office management vehicles, and so on. A lot of these cars end up being sold as near-new used cars, so the supply of these vehicles has largely disappeared.
With thousands of customers looking to change their cars at the end of PCP contracts every month, that’s meant that a lot of them have been buying used cars instead of new ones, swallowing up the limited supply of near-new cars and driving prices up significantly.
In turn, that has a knock-on effect for slightly older used cars, when affects even older cars, and so on all the way down the line to decade-old vehicles and even older. And it’s going to keep used car prices high until new car production starts returning to more normal levels.
What can we expect for the rest of this year?
In short, more of the same. Some car companies are reportedly starting to get their supply chains back under control and are hoping to increase production in coming months, but realistically new car waiting lists are not going to magically disappear anytime soon.
The good news is that – unless Putin really loses his marbles and attacks NATO – we’re unlikely to see the sort of acute production shortages we saw at the end of last year, so hopefully we’ll have a less chaotic Christmas sales period in 2022.
For the used car market, we’re going to see high prices for at least another year. The industry can’t suddenly replace two years of new car production, so in 2023 and 2024 there will be far fewer three-year-old cars in the used car marketplace, which will keep prices inflated – not to the extent we’re seeing prices jacked up right now, but still higher than normal.
The bad news is that increasing cost-of-living pressures will put many thousands of households under real financial strain, which could significantly increase car finance defaults. We saw a similar pattern starting during the early days of the Covid pandemic, when millions of workers were suddenly furloughed.
To help prevent widespread defaulting and a potential car finance meltdown during Covid, the Financial Conduct Authority (FCA) set out provisions for customers to take a three-month ‘payment holiday’ in 2020. It’s possible that the FCA may need to keep a similar option in reserve if necessary later this year, but hopefully the situation won’t get that precarious.
