The experts are pretty much all in agreement that a recession is looming. Yet the noises coming out of the motor trade industry appear relatively positive. We delve into what the future might hold for car dealers in the coming months.
Car Sales Grow in November
Despite that bleak outlook, car dealers contributed significantly to economic growth in October. The Office for National Statistics (ONS) declared that Gross Domestic Product (GDP) grew by 0.5% in that month. They point out that car sales played a big part in that uplift. This was in contrast to a 0.6% reduction in the preceding month.
The car sales and car manufacturing sectors of the economy grew by 0.7% in October. Yet, the UK is facing a lengthy recession. Inflation remains close to a historic high. Whilst energy prices are forecasted to increase again. In the midst of the cost of living crisis will demand for cars remain? Economists believe that this turnaround will be a flash in the pan.
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Yet There’s Hope For The Used Car Market
Values for used cars have proved robust during the UK’s recent financial troubles. Many have put this down to ongoing supply chain issues. Restricted supply has failed to meet demand. When available vehicle number return to normal, it’s been assumed prices will drop.
Providers of finance to the used car market CarFinance247 believe the outlook will remain optimistic. The company’s co-founder Louis Rix, gave his thoughts to The Times.
The industry expected described the used car market as ‘recession proof. ’ The entrepreneur has confidence that more buyers will simply turn to finance to fund their vehicle purchases.
The performance of his company leads him to conclude that the cost of living crisis will not reduce vehicle ownership. Alternatively, there will be an increased demand for finance packages.
Instead of paying cash for a “budget city car” consumers are opting for finance. This allows them to retain their rainy day fund. Rix backs up his claims with stats. During the last financial quarter, CarFinance247 increased its volume 10%.
That was achieved in the face of interest rate rises. Packages now begin between 9.9 and 10.9%.
So Is The Rebound Really A False Dawn?
When discussing the figures chancellor Jeremy Hunt painted a bleak picture: ‘While today’s figures show some growth, I want to be honest that there is a tough road ahead. He laid the blame on, “The aftershocks of Covid-19, Putin’s war and high global gas prices.”
A further rise in interest rates by the Bank of England to try an curb inflation is expected on December 15th. The anticipated jump from 3 to 3.5% would result in the highest rates since 2008. Experts highlight that a delicate approach is needed. Moving the rate too high or too quickly could risk worsening the financial outlook for firms and households. That could extend the severity and length of the looming recession.
Yet Used Car Prices Continue to Rise
Data from eBay Motors Group shows that used car prices increased by 2% in November. That is in the face of low seasonal demand. The average advertised price of used cars achieved £17,610 in November. Cars below two years in age rose by 3% to £35,425 contributing to a 19% jump year on year.
Auto Trader also reports that car prices remain 4.7% up compared to a year ago. Auto Trader’s Data and Insight Director Richard Walker stated, ‘Despite the broader economic uncertainty, the ongoing year-on-year price growth supports our cautious, but confident, outlook for the used car market.”
This is supported by the fact average used car prices on the site are 45% higher than prior to the pandemic. Advert views were also up 11% in November when judged against the more “normal” trading conditions of the same month in 2019.
Electric Vehicle Market Drained
One area of the car market particularly hit by the energy crisis is EVs. Auto Trader say demand is significantly down on their marketplace. Searches and advert views for used EVs has reduced fallen by nearly 13% in the last year. As a result stock levels of EVs have doubled year on year.
Consumer hunger for electric vehicles is reducing as the cost of charging rises dramatically. This is in contrast to recent petrol and diesel price reductions. Government support for EVs via favourable discounts and tax reliefs appears to be subsiding. The chancellor announced in his Autumn statement that the vehicle excise duty exemption will be removed for new zero-emission cars from April 2025.
So there you have it, the outlook appears a mixed bag for the motor trade. There seem to be reasons for pessimism and optimism in relatively equal measure. We trust our motor trade clients have the skill and experience to navigate their way through what could be a tricky period.