New car registration growth falls for first time in two years – EY comments

David Borland, EY UK & Ireland Automotive Leader, comments on the Society of Motor Manufacturers and Traders (SMMT) new car registration figures for August 2024:

“August is a traditionally quieter month for UK new car registrations as consumers wait for the new plate and model year changes in September. This August saw a modest 1.3% year-on-year decline in registrations, following 24 months of consistent year-on-year growth, with a volume of just under 85,000 new registrations.

“Stubborn challenges for the UK’s automotive industry are becoming structural, as the less profitable fleet channel continues to dominate, with 60% market share this year to date. Granted, elements of this data should be treated with a degree of caution given salary sacrifice sales contribute to fleet figures rather than retail, but there is still cause for concern in terms of the broader impact to sustainable profitability for manufacturers.

“Battery Electric Vehicle (BEV) sales continued on an upward trajectory in August, with a year-on-year increase of 10.8% and a market share of 22.6%. This was the highest monthly share since December 2022, and exceeded the Zero Emissions Vehicle (ZEV) Mandate target of 22% for the first time since it was implemented. However, for the year so far, BEV market share is only 17.2% and there will be challenges ahead on how manufacturers manage the 22% target, balancing volume aspirations and the risk of financial penalties.” 

Complex road ahead for automotive businesses despite consistent registration growth

Ali Fitt, EY UK Automotive Tax Director, said: “Despite a minor downturn in August, the market is up over 5% this year to date and the industry’s consistent growth amid persistent regulatory and economic challenges is testament to the resilience of the UK’s automotive sector.

“However, the longevity of such growth, and what it will mean in reality for cash flow and profitability, presents a more subdued picture. With a longer-term view, it will be imperative that manufacturers strike the right balance between regulatory compliance, a compelling and joined-up consumer proposition and competitive pricing – but there remains a complex and nuanced road ahead for that to become a reality.

“The industry has already seen key players turning to creative solutions in attempts to proportionately balance each of their priorities, such as limiting petrol/diesel sales in pursuit of ZEV Mandate compliance and reassessing product, manufacturing and retail strategy. But how sustainable such measures and tactics will be from a financial and commercial perspective remains to be seen. 

“Positive consumer sentiment is crucial and the recent cut in Bank Rate along with indications of further cuts going forward should hopefully boost new and used retail sales with more attractive finance offerings.

“Overall, the next couple of months will be pivotal for the short and medium-term. September will bring the latest products to market, and thus a potential opportunity for an uptick in consumer demand that Original Equipment Manufacturers (OEMs) will have been planning and hoping for. Meanwhile, Parliament is now back from summer recess, and there is growing speculation the UK Government is considering an alternative strategy in a bid to stick by its pledge to ban new combustion engine sales by 2030. The Government’s Autumn Budget is eagerly anticipated and could represent a key moment for the industry. A particularly significant topic will undoubtedly be Electric Vehicles (EVs) and whether any tax incentives will be introduced in a bid to help build a more compelling proposition for consumers as well as consideration on the future of excise taxes.”