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'Brexit will cause steeper decline' in new car and LCV registrations to 2018

Europe - Brexit jigsaw pieces

The UK’s exit from the European Union will prompt an increased decline in new car and LCV registrations to 2018 than originally forecast.

And while the trend is to be replicated in western Europe, the UK will bear the brunt of the impact, according to IHS Automotive.

It expects that, while the market will remain up in the full year of 2016, helped by a steady growth performance during the first five months of year, despite a strong string of gains over the past few years.

However, it has reduced this improvement to just 1% year on year to around 3.045 million units, versus the 3.2% year-on-year gain that had previously been anticipated.

The declines that were already forecast to take place during 2017 and 2018 are now expected to be steeper.

Registrations of cars and LCVs are now forecast to fall by 9.1% year-on-year to 2.758m, rather than a 3.5% year-on-year decline.

For 2018, registrations are now expected to hit 2.71m units versus the 2.94m units for IHS’s pre-referendum forecast.

In addition, its western European forecast will now fall during the next two years despite further gains during 2016.

Although car and LCV registrations will grow by around 5.0% year-on-year this year to 15.64m units, this will be behind the 15.75m units that was expected.

Furthermore, registrations in 2017 are expected to dip by 1.2% year-on-year to 15.45m units, compared to the increase to 15.98m that had been expected.

During 2018, the situation is now expected to be flat at 15.45m units rather than standing at 15.95m units as was expected.

Outlook and implications

“Our economic expectations for the effect on the UK market were first published last Friday,” said principal analyst, Ian Fletcher.

“Factors that are expected to have a direct impact on our short-term forecast include an unwinding of GDP, with growth in 2017 now put at 0.2% instead of the previous forecast of 2.4%.

“In addition, the depreciation of the GB pound versus other currencies will have a negative impact on imported vehicles, and some OEMs are already considering what steps they will take to change pricing of overseas-built vehicles to offset the effect.

“Even so, there could be some benefits for vehicle producers initially from the depreciated pound, making vehicles even more competitive and attractive than they might have previously been.”

IHS believes the Eurozone's growth outlook has weakened appreciably following the UK's decision to leave the EU.

Prior to the UK vote, IHS had been relatively upbeat about Eurozone GDP growth prospects, seeing GDP growth at 1.7% in 2016, 1.8% in 2017 and 1.6% in 2018.

However, this forecast has now been cut to 1.4% in 2016, 0.9% in 2017 and 1.4% in 2018.

“In particular, business and consumer confidence is likely to take a prolonged and appreciable hit from heightened economic and political uncertainties as well as financial market turmoil,” said Fletcher.

“Sharply increased political instability is likely across the EU, with anti-EU and right-wing nationalist movements strengthened.

“Heightened instability and uncertainty is likely to weigh down on business investment and willingness to employ, while it is also likely to weaken consumers' willingness to make big-ticket purchases.

“Tighter credit conditions and weaker asset markets also threaten to affect businesses and consumers.

“Meanwhile, Eurozone exports to the UK – which is an important destination for many Eurozone countries – are likely to suffer from sharply reduced growth in the UK as well as a strengthening of the euro against the pound. However, the European Central Bank (ECB) has also indicated that it is prepared to take whatever action is necessary to ensure price and financial stability.”

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  • Kelvin Hughes - 29/06/2016 14:15

    This was quite predictable which is why it astonished me to read one of your surveys suggesting dealership staff want out. No complaints please when your profits and commissions fall.

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  • Mal - 30/03/2017 13:33

    This obviously has everything to do with Europe, and nothing to do with the fact that Manufacturers have been pushing up targets every year with a top down approach, and then advocating motability, huge fleet discounts, pre-registrations, additional demos and courtesy cars . . in a market where the true retail customer is declining! PCP's mean people are in a cycle and will change every couple of years if the residual justifies it, but if you stripped away the giveaways, added real retail margin, then the market would naturally drop, as it is saturated with product as opposed to customers. The next driver will be the diesel scrappage scheme, which will drive sales, but then the following year the manufacturers will ignore the one off scheme, take the previous years actuals and add a percentage to them for your target. It is wholly unsustainable to continue producing as many cars as you can and then pushing them onto a market.

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