2020 Vision – the Outlook for 2020 Part 2

John Hughes MD 

Welcome to Part 2 of my outlook for the year ahead for the motor retailing sector. To read Part 1 please click HERE.

As with Part 1, this blog is not designed to be a detailed analysis, rather it is high-level snap shot view of some of the market factors that will influence motor retailing and motor retailers in the year ahead. I hope you find it useful!

The New Vehicle Outlook – SMMT

After a quieter year in 2019, it seems, from the SMMT forecasts that we will see further declines in the year ahead. The bright point will be alternative fuelled vehicles.

  • Cars registrations at 2.2 million, down 4.4% on the 2019 outlook level.
  • Diesel car volume of 0.547 million, down 10.7% on 2019 and taking 24.9% market share.
  • BEV registrations to rise 89.3%, pushing market share up to 2.9%.
  • PHEV registrations to rise 69.5%, pushing market share up to 2.2%.
  • LCV registrations at 0.317 million, down 10.3% on the outlook for 2019.

https://www.smmt.co.uk/wp-content/uploads/sites/2/WEBSUM-SMMT-CARLCV-MARKET-OUTLOOK-Q4-19-Final-311019-002.pdf

The Used Vehicle Outlook

In the absence of any industry data, our feeling is that a slightly slower 2019 will be followed by a similar trend in 2020. As with new vehicles, environmental factors, notably urban low emission zones could play an increasing role, but a shortage of longer battery life used car stock will mean that while such cars will be ‘hot’ supply will be muted.

Environmentalism

Bristol is the first urban area to announce a city centre ban on diesels. Similar moves may well emerge next year and could impact used car values negatively, but this may be mitigated by a shortage of viable used non-fossil fuelled cars, the extent of low-emission zones within urban areas and any city access costs.

The environmental impact is coming, but a ‘soft landing’ change seems the most likely outcome, rather than a crash. It is an outlook borne of supply issues, the limited support infrastructure and the extensive area of the UK which will not in the immediate future see an ULEZ introduced. We also await news on how the Government will address any falls in tax revenues that currently stem from petrol/diesel; road pricing we suspect.

Used Car Values

While 2019 has largely seen a fall in used car values across most sectors, it seems possible that this may be reversed in 2020; although such a trend may be delayed until H2. Central to this, if it occurs, will be the waterbed effect of FCA changes on dealer profitability. The FCA’s recent consultation paper on motor finance considered this possibility and concluded it was unlikely. Based upon major dealer feedback, I am erring on a price rise being at least a possibility.

Any impact on finance income and recognising that general insurance such as GAP/RTI and SMART insurance is subject to another review that could affect another dealer income stream and the pressure to balance returns will have to focus upon chassis costs.

If prices do increase while finance costs fall, then arguably the overall impact upon car buyers using finance would potentially and broadly speaking, be cost neutral.

Conclusion

I have no doubt that 2020 will be a year of significant change, but this change in motor retailing is not a new thing. The sector has proved its agility to manage change consistently and has proved to be remarkably resilient. That said, I do believe the span of challenge is so broad that we will need to dig deep. At the heart of a resilient response to change will be used car stock and a simple closing message; for all of the challenges seeking to benefit from the demand for used cars, the real power rests with whoever has the stock.

Our best wishes for 2020.

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