7:28 am, December 10, 2022
As the UK economy edges towards a recession, the motor retail market is in a far stronger position this time around as opposed to where it was at the start of the 2008 downturn following the financial crash.
That’s the view of Auto Trader, which has made a series of cautious forecasts for the year ahead, including predictions that the new car market will grow and used car sales will remain in line with 2022.
‘The new car market at the last recession was characterised by oversupply,’ the firm’s brand director, Marc Palmer, told Car Dealer.
‘Manufacturers were pushing cars into the market, and while new car pricing was relatively stable, there was really aggressive discounting.
‘On top of that, there was lots of supply, not many organic natural orders in relative terms, and heavy pre-registration.
‘Manufacturers were also spending anywhere between £700m and £800m a year on stimulating demand, and the government added another stimulus, which was the scrappage scheme.
‘If we look at the circumstances now it’s really very different.
‘The new car market suffered an immediate, short and sharp drop from nearly 2.5m, on average, in 2020, to a market of 1.6m.
‘Pricing has been increasing for new cars with minimal discounting – there’s hardly any free supply.
‘Also, there’s little pre-registration activity and the brands are spending half the money to stimulate demand – their mindsets are different.’
Palmer added: ‘If that supply does start to return, there are a few levers that they [manufacturers] can pull to stimulate demand and make cars cheaper through media spending, discounting and more.
‘They hold quite a few cards in making sure they’re more insulated from a profitability point of view.’
Auto Trader predicts around 1.9m new cars will be registered in 2023 – a 22 per cent lift in the predicted 1.6m cars to be registered this year, but still an 18 per cent drop on pre-pandemic 2019.
That figure depends on levels of supply in the market, but the firm believes supply constraints will ease noticeably in the last quarter of 2023.
Used car sales will remain steady at between 6.8 and 7.0m, similar to 2022, as the sector continues to battle with currently impinged new car supply and, moreover, the loss of 2.5m new car registrations since the start of the pandemic, which has left a dearth of nought-to-one-year-old and one-to-three-year-old cars.
Unlike other sectors, the motor industry will be ‘partly shielded’ from economic pressures because of ‘unique macro factors’, said Auto Trader.
These include a backlog of people – circa 500,000 – waiting to take their driving test, current problems with public transport and five million ‘lost’ new and used car sales since the start of the pandemic, which has created ‘pent-up demand’.
