"The UK new-car market is so oversupplied and overinvested that it’s extremely difficult to make decent money. Just how profitable it can become will be almost totally dependent on right-sizing – by which I mean somewhere south of two million registrations a year.”
Those are thunderous words, given the registrations peak of 2.69m new cars recorded in 2016, prophetically spoken not over the tumultuous past few months but more than a year ago by the ever-straight-talking Vauxhall boss Stephen Norman when he was asked to assess the state of the market.
Now, of course, it has been reset, albeit via a cliff-edge global pandemic rather than sound economic planning, with registrations of around 1.5m predicted for 2020. Tellingly, though, even with the prospect of massive unemployment and potential Brexit complications to ripple the start of next year, the last forecast (set in October by predictions from manufacturer representatives) was for about 2.0m registrations in 2021 – bang on Norman’s target.
The question now being asked is whether Norman’s view – whispered by bosses of other mass-market brands but not spoken as loudly – was on the money and whether the circumstances that have led to the precipitous collapse are suitable for profitable trading.
Certainly a glance at the quarterly results from some of the large dealer groups in recent weeks suggests there has been money to be made. The slew of better-than-expected results caught the headlines, albeit with new car profits combined with those for booming used car sales and cash from aftersales divisions feasting on pent-up demand after the famine of lockdown.
While there was highly profitable business being done, the risk is that these were recorded not in the ‘new normal’ but rather in what may well come to be regarded as a golden period between the first and second lockdowns, as pent-up demand was unleashed and so-called revenge buying – people rewarding themselves for the hardships they had endured – was prevalent.
Even so, what’s clear is that the positive results were achieved by selling fewer cars at greater profit margins – more profit for less effort, in very crude terms.
But not everyone sees it as a positive. Society of Motor Manufacturers and Traders chief Mike Hawes continues to caution that the impact of low sales volumes will inevitably impact on the financial health of manufacturers and in turn impact on the million or so people employed directly and indirectly across the UK’s automotive industry.
“The ongoing decline in registrations for 2020, combined with the prospects of what looms ahead, paints a very gloomy picture for the future of the sector,” he said.
Whichever side you sit on, though, it’s clear that many are looking beyond the obvious negatives of the pandemic to seize the opportunity to reset, presented because the seemingly impossible has happened: factories have been idled or slowed to the point that overproduction, the scourge of the industry’s bottom line for decades, is no longer an issue.