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Guest opinion: can new car volumes be sustained in 2015?

Author: Paul Burrows and Tarun Mistry, Grant Thornton Automotive

"There can be no arguments that 2014 has been nothing but an unqualified success for new vehicle registrations.

The final count reveals 2,476,435 new cars registered, which is 9.3% ahead of 2013 and consolidates the UK as the second largest European market by quite some distance. With the UK sterling exchange rate in a reasonable place, product is worth pushing in to the UK – but more of that later.

Firstly, let us look at the individual performances.

Ford has retained its lofty position as number one for volume, registering over 326,000 new cars, ahead of Vauxhall and Volkswagen by 57,000 and 112,000 respectively.

It is unlikely that Ford will ever be knocked off its perch unless it makes a major howler or new product delivery dries up.

What is of more interest is momentum, and both Ford and Vauxhall nudged forward around 5% over the year with Volkswagen at double that rate.

It should be clear now in the market place what each brand aspires to in 2015, this will drive quarterly behaviours. Again, more of this later.

The year has ended with 2014 being a record 10 year high – will 2015 sustain the momentum or will we see flat lining?

Premium stars

The real stars can once again be found in the premium space, with Audi, BMW and Mercedes registering over 430,000 units between them or just under 20% of the total for the UK.

This is a real change which we all recognise and we have commented on throughout the last eighteen months.

You can’t tag non-premium as volume anymore because premium is also volume.

Take Audi, they have registered more new vehicles than Toyota and Honda added together, quite astounding when you consider that Toyota is the world’s biggest volume player.

The only real mainstream loser was Peugeot with an overall decline in growth of 1.77%.

It is well documented that this brand has had a challenging few years and has been linked with a variety of partners – culminating in the Chinese arrangement.

Other than Peugeot, all brands registering any sort of volume have moved forward in 2014.

One notable success has been Volvo, again with a Chinese connection, who have grown their volume by 25% and in so doing, have pushed up their market share.

As we have previously commented, market share is really important to most brands and we suspect their marketing strategies will have a strong Plan B if overall volumes do cool off.

Newish entrants take small steps

It is also nice to see some of the newer, developing brands with small volumes, moving forward. MG, yet again with a Chinese connection, increased its volumes by 360% and although small in real terms, shows some encouraging signs.

Infiniti has also moved in the right direction with a 93% volume increase over the year.

New product is due for introduction, built in Sunderland, and with additional network representation points, we hope that volumes can start to move to the levels anticipated when the brand was introduced to the UK.
Brands such as Suzuki and Mazda have also recorded strong performances and we suspect their attraction to the bigger groups will increase in time.

Representation is so important and getting it right in terms of customer service an absolute essential to building brand loyalty on the back of increased volumes.

This applies not just to sales but also service where it is well documented that independent garages still eat in to the franchised dealer’s ‘lunch’.

We were fortunate to recently attend one brand’s dealer conference and this was the message – retention is fundamental and a number of tools have been developed to help achieve this.

Nonetheless, and speaking to a colleague on the receiving end of some bad customer service, it is still down to people with common sense and a willingness to go the extra mile which invariably generates the right sort of customer goodwill.

The crystal ball of 2015

So what will 2015 hold for UK registrations and the dealer network?

Speaking with dealers since the new year, there is much optimism, but also a large blanket of caution that new volumes cannot continue to grow without eating into the used market.

The interaction between new and used remains delicate, and with Personal Contract Purchase (PCP) renewals starting to make inroads in to a retailer’s annual registration target, there is a strong case, as one prominent CEO has explained, for growth to be
totally at the expense of used.

We know that margins have been challenged in used due to the type of product being offered – a lot has been vehicles previously registered and thus recorded in the SMMT statistics.

We always refer to this as remarketing rather than selling, and 2015 will be a key year in defining future trends.

Used product has been scarce and values have held up, but with more PCP returns kicking in, the challenges are to retain the entrepreneurial aspects of used as well as meeting new targets.

No mean feat to achieve this, there is much good and more expensive product around in the independent used car networks.

So we remain positive and optimistic, but also realistic. The dealers with deep pockets, and those who are excellent in their delivery, will continue to thrive.

The others, well consolidation continues apace and we expect to see one or two more difficult situations as the pressure builds and options become limited.

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