A vote to leave the European Union in the June 23 referendum could damage the UK’s new car market and lead to massive economic uncertainty.
Kia Motors (UK) chairman and chief executive Paul Philpott told a brand and market briefing for journalists this morning that he hoped an annual new car market of 2.6 million to 2.7m units could become the norm – but a Brexit vote would threaten this.
“If we stay in the EU we will see a 2.7m unit new car market this year and my hope is this will become normal. Such a position would give stability; an exit vote would affect consumer confidence in one of the biggest purchase decisions people make, a new car. It will also mean a leap into the unknown.
“Trade agreements can take two, five or even 10 years to finalise, so we won’t see an immediate impact of an exit vote in these terms, but we also don’t know the impact on the strength of the Euro or Stirling.”
Philpott (pictured) cited an Society of Motor Manufacturers and Traders’ survey in March, which revealed 77% of its members said staying in Europe was best for business.
Looking at the reasons why the EU is important to them, SMMT members said at the time access to EU automotive markets has a positive impact on their business (66%).
This is followed by a majority saying that access to a skilled workforce (55%) and the ability to influence industry standards and regulations (52%) also have a positive impact on their business.
“We would agree with the 77%,” said Philpott.
Kia’s market performance – and dealer confidence
Kia is on course for a record year of new car sales. Ahead of the SMMT publishing registration figures tomorrow, Philpott said last month looks to be the best March in the 25 years the brand has been on sale in the UK.
It registered more than 16,200 new cars, beating March last year when it achieved 15,017.
“The performance is down to balanced growth in fleet and retail – each up 8% - and new Sportage, which went on sale on February 5.
It also means 2016 could be a record year for Kia sales in the UK. It had initially planned to sell 84,000 units, up from 78,500 in 2015.
“But considering March’s performance, we could be looking at perhaps 85,000 units,” he said.
“We can’t claim the market is breaking records due to post recession, pent-up demand anymore. Now, change cycles are coming down. For example people are changing out of the old Sportage at between 24 and 32 months. The traditional four year change cycle is reducing to three years or less.”
There is no sign of the new car market cooling, Philpott said.
PCP finance agreements make up 70% of the 188 Kia dealers new car business.
With Kia forecasting total new car sales of 84,000 units this year, about 15,000 PCP agreements on previous sales will come to an end. In the last 12 months Kia’s retention rate on PCP is about 50% - more than double that for conditional sales.
Kia’s PCP contracts are to a maximum of 36 months in an effort, the brand says to ensure adequate residual value for the consumer to put towards a new car.
“We set our guaranteed future values at 85% of CAP to help ensure a Kia owner has the equity at the end of the PCP to put towards a new car,” Philpott said.
Simon Hetherington, Kia’s commercial director, said the brand’s growing popularity was leading its dealers to look for dealership expansion, particularly in workshop capacity.
“We’re not dictating new minimum standards or increased showroom space, but dealers are reaching the conclusion naturally that it will be required as they sell more cars,” he said. “They are coming to us to begin these conversations.”
The network’s average return on sale is 1.3% with the top quartile making around 3%. Philpott said the target average is between 1.5 – 2%.
He acknowledges that recent required investment in facilities would have had a negative effect on margins.
The dealers making 3% were typically those that had been early investors in the latest corporate standards as well as having “strong leadership and staffing stability”.
Kia plans to have 190 dealers before the end of 2016. It plans to have 200 when it reaches 100,000 new car registrations per year. This is Kia's 2020 target.