Consumer confidence weakens car demand in July

The new car market fell by 13.0% in July – the steepest decline since December 2006, according to the Society of Motor Manufacturers and Traders (SMMT). The shortfall was more pronounced than expected and reflects growing concerns of weaker consumer confidence.

July marked the third successive month of falling new car demand, with volumes down 7.4% in the past three months.

The July 2008 total was 13.4% or 23,810 units off the 1999-2007 average for the month of 177,230 units.

Forecast revised down in July

SMMT’s revised forecast for 2008 suggests a 6.6% decline in volumes in the second half of the year. The forecast for 2009 was cut due to concerns that the economic situation will remain subdued for a more prolonged period.

The 12 month rolling total fell to 2.361 million units in July – the lowest level since February last year, but would still mean that full year 2008 figures would be in the top ten annual totals.

July is a relatively small volume month – at 7.3% of annual sales. But the total was 7% below expectations. August is also a very low volume month and so September should provide a much clearer indication of underlying trends.

All sales types show decline in July

Private sector volumes have fallen in every month of 2008, but the July drop was the steepest recorded since February 2005.

Fleet volumes which have been supporting the market, remain positive over the year-to-date but have also begun to recede.

Ford and Focus move back to top spot

Ford responded to being knocked off number one spot in June with an 8.5% rise in July volumes. BMW, Kia, Nissan, and Volvo have seen the best gains over the year-to-date.

The Ford Focus just beat the Fiesta to be the number one best seller in July. VW Golf’s was the best selling diesel in both July and over the year-to-date.

Only the mini and executive segments posted growth in July.

Diesels not immune to slowdown

The diesel market fell in July for the first time since February 2007. However, its market share continued to improve – at 44.3% compared with 41.2% a year ago. Year-to-date volumes remain positive, but are likely to drop as the overall market slips. Market shares should edge higher as the consumer looks for more fuel efficient options.

Demand for alternatively fuelled vehicles bucked market trends and rose by 19.4% in July to 1,479 units.

Economic analysis

HM Treasury’s review of Independent Forecasts (see opposite chart) shows that until autumn last year GDP growth in 2008 was expected to be above 2.25%, but since then the outlook has become much more pessimistic and the forecast has been cut to just 1.6% currently. A more rapid cut to growth prospects in 2009 has taken place.

Consumer confidence surveys show similar results, as the credit crunch, weaker housing market and high inflation hits. These impacts are now clearly impacting on new car demand.

Paul Everitt, SMMT chief executive, commented: “The 13% decline in July new car registrations reflects the continued deterioration in consumer confidence being experienced across the economy. Rising fuel and household bills, alongside falling house prices are making consumers reluctant to commit to new expenditure.

“Vehicle manufacturers are doing their bit to support consumers. New cars are now 22% more affordable than they were ten years ago and new technology is delivering more fuel efficient motoring. Industry needs the support of government in order to encourage the uptake of lower-emitting vehicles and ultimately lower the cost of motoring for consumers.”