Car sector started 2018 in reverse as SMMT report 6.3 per cent year-on-year drop in new sales in January

Both consumers and business sectors see declines

The car sector remained in reverse at the start of 2018 as the SMMT reported a marked 6.3 per cent year-on-year drop in new registrations in January, with fleet buyers cutting back markedly and private sales also down significantly. 

This was a 10^th successive drop in new car sales. At least though, it was less than the dounbe-digit drops seen through the fourth quarter of 2017.  

Sales of diesel cars have been decimated by pollution concerns and expectations of related government action to counter this. January’s drop of 25.6 per cent year-on-year followed the Chancellor announcing in Noveber’s budget that a levy would be introduced in April on all new diesel cars that failed to meet the latest emissions standards. 

While this contributes substantially to the weakness in car sales, the  overall softness runs deeper than this as the pick-up in demand for petrol and alternatively fueled vehicles has been insufficient to compensate for the slump in diesel sales.  

January’s 9.5 per cent drop in private sector car sales points to squeezed, uncertain consumers being reluctant to make major purchases. 

While uncertainty over government policy on diesel cars has clearly affected fleet sales, another drop in January (down 1.8 per cent year-on-year) also suggests that businesses have become more cautious in their car purchases in response to appreciable economic and political uncertainties. Many businesses have likely become increasingly inclined to delay replacing vehicles.

2018 looks set to be another challenging year for new car sales with a further drop of 5 per cent or more highly possible The sector is pushing very hard for early agreement on a Brexit transition arrangement to help ease uncertainties. 

The Bank of England’s decision to raise interest rates in November and the probability of further hikes in 2018 may way well weigh down on car sales. We now expect two Bank of England rate hikes in 2018.

Car sales are also likely to be hampered by mounting pressure to restrict car finance deals and unsecured consumer credit. The Bank of England has shown mounting concern over this and is keen for a more responsible approach to be adapted. This is magnified by concerns over the resale value of cars at the end of Personal Contract Purchase (PCP) deals.