Car market continues to slow in June

In line with growing concerns about the economic setting, new car demand has begun to ease. Demand fell by 6.1% in June – the steepest decline so far in 2008, but the fall was in line with SMMT forecasts.

Registrations in quarter two were down 2.5%, slightly steeper than the 0.7% decline recorded over the first quarter.

June typically accounts for 9.0% of the annual market and volumes in 2008 were 4.0% off the 1999-2007 average for the month with 217,966 units.

Forecast to be reviewed in July

SMMT will consider the latest figures and review its forecast for the full year later this month.

The market had been performing better than expected. However, the declines in May and June have brought volumes back in line with expectations.

At present, concerns are that GDP growth will slow rapidly in the second half of the year and settle at around 1.5% in 2009. Consumer spending has been bolstered by a cut in the savings ratio, but how long it can withstand rising cost pressures remains to be seen.

Fleet market stable

The fleet sector was the only one to maintain growth in June and now accounts for over half the market in the first half of the year, following 2% growth.

Both private and business demand has shown similar rates of decline over the past six months. Private demand fell by 7.9% in quarter two and the weakening position reflects growing concerns about the health of consumer spending.

Corsa takes June honours

Vauxhall took the top two slots of the best sellers’ list in June for the first time since February 2000. The Corsa was the best selling model for the first time since September 2004, although Ford’s Focus remained the best seller over the first six months of 2008.

In fifth position BMW’s 3 Series recorded its best placing of the year. BMW has seen the largest volume rise of 2008. Kia, Nissan, smart and Volvo are amongst others also recording strong gains.

Demand for diesel continues to climb

Whilst the overall market has fallen, diesel registrations have continued to improve. Diesel is now noticeably more expensive than petrol at the pumps, but better fuel efficiency and lower tax rates (due to lower CO2 emissions) has sustained growing demand. The BMW 3 Series was June’s top selling diesel.

Demand for alternatively fuelled vehicles (AFV) declined for a second successive month in June, down 6.7% to 1,444 units.

Economic analysis

The CPI rate reached a new high of 3.3% in May and expectations from the Bank of England are that it could top 4% this year. Higher food and energy costs – global issues – are the key drivers. Higher inflation at a time when the GDP growth is slowing creates an unwelcome mix. Interest rates may need to rise to halt inflation and workers will seek wage increases.

New car prices have failed to match headline inflation as intense competition has kept prices down, despite higher raw material costs and rising investment needed to meet tough environmental standards.

Paul Everitt, SMMT chief executive, said: “We are now seeing concerns about rising fuel bills and household costs dampening consumer confidence leading to slower demand for new cars. This slow-down is not unexpected, but signals an increasingly tough retail environment.

“Cost pressures, environmental concerns and technological advances, have ensured consumers have taken the choice of buying more efficient vehicles and record numbers of cars are now in the lowest CO2 VED bands. The share of cars in the A band has increased more than tenfold in the past year.”