UK Passenger Car Sales Rise by 7.9% Y/Y in May on Strong Private Demand

Passenger car demand in the UK has improved again, with sales in May up 7.9% year-on-year (y/y), according to the latest data published by trade association the Society of Motor Manufacturers (SMMT). Sales during the month hit 162,288 units, up from 150,431 units a year ago. The main driver of this growth has been the private sector, where sales have increased by 14.3% y/y to 69,672 units. However, fleet customers have also offered some support with demand up 4.8% y/y, and resulting in it taking 53.7% of the market, although this was down from 55.3% seen in May 2011. However, demand from businesses remained in retreat with sales down 13.5% y/y to 5,490 units. The contribution this month has resulted in a further increase in the year-to-date (YTD), now up by 2.6% y/y at 868,166 units.

Ford maintained its position as the leading brand in May with sales of 23,255 units, an increase of 7.8% y/y. Despite missing out on having the top-selling model this month, it still managed to see its Fiesta and Focus models finish May in second and third in the chart. The top of the model chart this month was left to the Vauxhall Corsa, which helped the brand in to second place as it recorded overall sales of 20,275 units with a gain of 7.6% y/y, with the help of the Astra and Insignia in fifth and ninth spots, respectively. The Volkswagen (VW) brand finished May in third, having sold 15,511 units, an increase of only 0.7% y/y. It was helped to this position by the Golf in fourth and the Polo in seventh. The German premium brands again made up a significant portion of the top 10 this month, with BMW leading the trio as it took fourth, with a gain of 4.2% y/y supported by the latest generation 3-Series, the sixth best selling model. Audi and Mercedes took fifth and seventh, both recording double-digit sales improvements. The remaining brands in the top 10 were also seen to record significant improvement, the exception being Nissan which has recorded a fall in sales of 14.9% y/y despite the Qashqai being the eighth biggest selling model this month.

Outlook and Implications

This is the latest month of improvement for the UK market which has seen renewed buoyancy despite the economic uncertainties that remain. The SMMT's chief executive Paul Everitt said that May's registrations are "good news for the motor industry and the UK economy, particularly the steady growth in demand from private buyers". He added that confidence appears to be returning and that "there is no doubt that vehicle manufacturers and their dealer networks are working hard to deliver value for money to motorists". Indeed, several of the main automakers in the country are offering various incentives to continue the footfall of customers in to the showrooms, including a range of financing options and special editions loaded with optional extras at a cut price.

However, sales should be taken in the context of the period before the economic crisis, which started to hit in 2008 and 2009. In the five years before, May sales averaged some 191,500 units, which makes this month's tally over 15% lower. This below-par performance is being caused by the heavily slowed economy in the country, which has officially now re-entered recession as GDP in the UK contracted by 0.2% quarter on-quarter (q/q) during the first quarter this year, following a fall of 0.3% q/q during the fourth quarter of 2011. Although there are serious doubts that the economy really did contract in the first quarter given overall improved surveys and data, there is no doubt that the economy is struggling with still-squeezed consumer purchasing power, tighter credit conditions, tighter fiscal policy, and muted global growth. Events in the Eurozone are also weighing down on the UK economy and pose serious downside risks to the outlook. Modest sustainable growth is seen developing from the second half of 2012 as moderating inflation eases the squeeze on consumers and global growth hopefully improves.

At present the SMMT expects the UK passenger car market to record a small 0.4% y/y uplift in demand during 2012 to 1.948 million units, with a further 2.6% y/y growth to 1.999 million units forecast in 2013. For now, IHS Automotive is retaining its expectations for the year, which suggests that they may dip just very slightly to around the 1.93-million-unit mark, but will return to over 2 million units in 2013. However, this will like to depend on the fallout from the Eurozone crisis which remains unresolved and is still very much in flux (see Europe: 5 June 2012: IHS Automotive Releases Contingency Light-Vehicle Sales Forecasts for Western European Market)