The latest figures show that consumers are losing interest in making large purchases on credit. This isn’t a new trend in the automotive industry. There’s been a marked decline in people buying new cars since 2017.
However, this wasn’t always the case. The march of the brand-new car seemed, at one time, to be unstoppable. Cheap finance and PCP plans fuelled a boom in new car sales, with as many as 80% of cars registered were brand new vehicles. Then a collapse in consumer confidence and societal switch in perspective towards a more ecological approach halted the relentless surge of new car purchases.
So, why are so many people choosing to keep hold of their old cars?
The Average Age of Petrol Cars
Previous UK governments may have exalted diesel cars through road tax and company car tax policies, but it’s quite clear that motorists favour petrol cars over diesel. At the end of 2017, there were 18.3 million petrol cars on the road and, according to the Department for Transport, the average age was 9.1 years.
However, about 25% of UK petrol cars are 13 years or more old – the highest percentage since records began in 2004 when just 6.3% of cars were 13 years or older.
The Average Age of Diesel Cars
The once formidable number of diesel cars on the road has stuttered for the last few years. The lion’s share of the reason for this must come from the Volkswagen emissions scandal of 2015. In case you’re unaware, it was discovered that a hidden computer program can detect when cars are undergoing emissions tests and switches the engine to a mode where it emits less Nitrogen Oxide (NOx) to pass strict air quality tests.
In the UK, the average age of a diesel car is 6.6 years. Unlike petrol, only 9% of diesel cars are 13 years or older. It’s only been very recently that diesel-powered cars have emerged at the forefront of consumer confidence once again.
Reasons for the Slump in New Car Sales
In June, Ford announced that they are to close its Bridgend plant in 2020. However, this was just the latest in a series of blows to the UK car industry. February saw Honda announce that they plan to close its Swindon plant by 2021 whilst Jaguar Land Rover and Nissan are also cutting production and jobs.
Why is the new car industry struggling?
The Price of the Emission Scandal
Across Europe, emission woes continue to cause headaches for car firms. Air quality concerns and changes in taxation have both contributed to a 7% drop in new car registrations in 2018.
A solution doesn’t appear to be on the horizon either. The introduction of tough, new C02 emission standards, designed combat global warming has made it much more expensive for manufacturers to build new cars.
From 2021, manufacturers will face big fines by the EU if their fleets break agreed emission limits – which are expected to become progressively tougher as the years go by. Manufacturers will be forced to add 1000 Euros worth of technology to make sure that they comply with new EU rules. This cost will be reflected in the overall price of the vehicle and another reason for consumers to not choose to purchase a new car.
The China Effect
After years of growth, global car sales were broadly flat in 2018, largely because of the slump in demand in the world’s biggest market, China. Trade tensions between Washington and Beijing has soured the once strong relationship. The demand for new cars was already diminishing, but the poor trade relationship between the two global superpowers accentuated it.
Jaguar Land Rover has blamed its poor performance on falling Chinese demand. Ford pulled out of plans for a Chinese-made Ford Focus to be distributed in the US because of the impact of trade tariffs.
Waning consumer confidence in the US and Western Europe had already slowed new cars sales, but the tension in the relationship between China and the US and inability to agree on production has caused a ripple effect in consumer opinion.
In the UK, leading car manufacturers have repeatedly warned of the dangers of a no-deal Brexit since the 2016 Referendum. Additionally, investment in the UK car industry has fallen significantly in the last two years – 46.5% in 2017 alone.
The problem is that British car plants rely heavily on components from the EU whilst most of the cars they build are then shipped off to the European mainland. Any uncertainties caused by Brexit is likely to take the form of tariffs which will likely cause bottlenecks and production delays which will result in the UK plants become less economic.
Uncertainty has resulted in fewer production of new cars means that less people are buying and with a positive economic outlook still being viewed with a degree of trepidation, major spending by the UK population is conservative at best.
The good news for motorists is that car reliability is at, arguably, its highest percentage for generations. An increase in our technological prowess and production methods have resulted in better quality, more reliable cars than ever before.
The UK government has vowed to end the sale of diesel and petrol models by the year 2040 at which time, it’s presumed, there will be the infrastructure required to support electric cars. The emission scandal has demonised diesel, but consumers are still buying new diesel cars every single day.
China and the USA may be at loggerheads right now, but there’s no reason why the two countries won’t be able to agree on a mutually beneficial trade agreement that the car industry will directly benefit from, spurring on a dramatic upturn in new car sales.
The UK will leave the European Union that much is clear. The concerns of a no-deal Brexit in 2016 are not as strong as they are today. Regardless of whether the conservatives or labour lead the country into a new era of international relations, it’s clear that coming out of the EU without a deal is not an option.
The car industry, like any other, will evolve. It’s exciting to wonder what will change as we move into the 2020s.