This time of year is one where most car manufacturers and retailers would be busying themselves with the final month-end and quarter-end push that has historically been so critical to profitability in the calendar year. However, yet again, the sector finds itself in an unusual predicament where the plate change month would be characterised by ongoing supply shortages and gradual slowing of sales enquiries.
The incredibly sad passing of Queen Elizabeth II will also have served to dampen demand for vehicles as the country adjusts to the new reality of life in the UK.
Hot Topic One
Vehicle supply remains a challenge. It is improving for most manufacturers but is well short of where we would expect it to be in a normal year. Prevailing economic conditions would have suggested passenger car markets could have been around two million units in 2022 but the forecast is much closer to 1.6m units. This will be the third year in a row where the industry volume has been depressed, firstly, by COVID-19 and the impact of lockdown, and subsequently by the supply issues caused by the global economy remobilising and the war in Ukraine. However, there are positives that supply chains are re-aligning and order books remain strong.
Hot Topic Two
The 2030 deadline to end the sale of new internal combustion engine vehicles is within sight and momentum is building. The sector has seen huge proliferation in the number of alternative fuel (AFV) models available for sale and consumer demand has grown steadily to the point where 14% of vehicle sales are Battery Electric (BEV). That is a growth of 50% over 2021. However, the rising electricity prices are threatening the affordability of these products, so the recent government support will really help support the switch to EVs, as the lower running cost per mile is vital to bridging the higher capital cost.
Hot Topic Three
A revolution in the sales model is under way. Many of the car manufacturers are now implementing a pivot away from the established franchise model where a dealer buys a car or van from the factory and then sells it on to a customer. The new model is often described as Sales Agency and it will see the manufacturers take a much greater role in the transaction, forge stronger ties with customers and offer greater price transparency. It’s a fundamental change in the model which the majority of OEMs are committed to and something that is causing great unease amongst the retailers.
So, we can see that there are some major changes under way in the car industry. It is the most significant set of challenges that the industry has faced in living memory, but this industry is incredibly resilient and has enjoyed an unprecedented period of strong profitability over the last 18 months. As we face up to the likelihood of a recessionary period in the UK both OEMs and retailers will be mindful of the need to tightly manage costs, but they must not lose sight of the structural challenges that lie ahead.
Alastair Cassels specialises in providing guidance for OEMs, retailers and industry new entrants in the rapidly changing UK automotive landscape. He has an extensive knowledge of vehicle distribution and insight into how it will evolve.
Alastair joined MHA in April 2022 after many years’ experience in automotive manufacturing, sales and network development. His focus areas are supporting change in vehicle distribution through expertise in franchising, M&A, property, electric vehicle infrastructure, CO2 reduction and future business planning.
For more information visit MHA Macintyre Hudson’s website here.
Partner & Head of
Automotive Advisory
MHA
