"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.
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20% discount is the norm, the
20% discount is the norm, the new car we ordered pre pandemic had that kind of discount on it. Manufacturers make money from finance and the dealers make money from servicing. Kia and Hyundai don't just offer big warranties because the cars are reliable but because a cost benefit analysis was carried out on keeping the cars in the network for parts. Parts are a very profitable business for dealers.
I'm holding off for now,the deals out there aren't particularly exciting and dealers are offering poor prices on trade ins.
I don't believe this.
As a private buyer I have bought two brand new cars in the last three months, both with 20%+ discounts on MRRP. So I simply do not believe that fewer sales means higher transaction prices. The opposite is true, that manufacturers and dealers need to move the metal regardless, and are prepared to sacrifice margins for sales. Witness the airfields and car parks full of unsold new cars in this country alone, never mind the millions of nearly new and ex-fleet used cars at sites around the country.
It was always this way and will continue, while the massive manufacturing overcapacity and dealer incentive schemes exist.
Some plants will be closed (probably some in the UK), and more co-operation, platform sharing, and brand amalgamations will occur. Electrification and the advance of the chinese into advanced auto manufacturing, are only going to add to the pressure.
Congratulations on getting
Congratulations on getting hefty discounts, but the reason you did is due to chronic oversupply exacerbated by the pandemic. If over production is reduced then these discounts will disappear. Sounds like a good news story overall for the world (over production is very wasteful) but bad news for the UK industry, which will be without preferential trade deals and outside the tent when painful decisions are made.
Market Decides
Not sure I agree scrap. Never going to balance supply and demand, so there will on balance always be oversupply in the market as a whole to a greater or lesser extent and that equals discounts. Saloons not selling discount them heavily and build more SUV's and then discount them also. With record low interest rates available on new purchases and oversupply its probably the best environment to buy a new car if that's what your sold on doing.