UK Passenger Car Sales Dip in February

Passenger car demand in the UK has fallen during the second month of 2012, according to the latest data published by trade association the Society of Motor Manufacturers (SMMT). Vehicle registrations slid by 2.5% year-on-year (y/y) to 61,868 units, despite the extra day thanks to the leap year. Demand this month was dragged back by demand in the fleet and business markets were unit sales fell by 3.7% y/y to 37,143 units and 12.2% y/y to 1,997 units. However, some positivity was offered by private buyers, where sales increased by 0.6% y/y to 22,728 units. The contribution of this month resulted in some pull back in the year-to-date (YTD) sales, which after two months have now declined by 0.8% y/y to 190,721 units.

Ford was easily the largest selling brand in the market during February, with sales up 18.8% y/y to 8,957 units, as the Focus and the Fiesta took first and second spots with 3,713 units and 2,899 units sold respectively. The traditional second place holder Vauxhall was nudged into third spot by the Volkswagen (VW) brand, which declined only 0.5% y/y compared to the General Motors (GM) brand's 27.6% y/y decline. VW was helped to this position by having its popular Golf model in third place, the Passat in sixth and the Polo eighth. Vauxhall also had three models in the top ten; the Corsa, Astra and Insignia ended the month in fourth, fifth and seventh spots, respectively. Premium brands continued to offer market momentum with Audi in fourth seeing a gain of 5.3% y/y while Mercedes in eighth improved by 11.6% y/y. Only BMW let the side down with a 9.2% y/y decline, but still managed to achieve fifth place as the new 3-Series has not yet been fully rolled out.

Outlook and Implications

While demand growth this month has been weaker than in January, February is typically a poor month in this market due to the combination of fewer days and as many customers are awaiting the change in the age-related number plate taking place during March. Indeed, the SMMT's chief executive Paul Everitt said in a statement that although "the February new car market was broadly in line with industry expectations with a welcome increase in private retail activity… The March market will provide a much better indicator of industry health than the relatively low volumes traditionally seen in February". However the retreat in February has been far lower than other markets in Europe which have proven to be far more problematic. Nonetheless, sales are around a quarter of average February sales between 2003 and 2007, prior to the crisis, reflecting the ongoing economic difficulties. IHS Global Insight believes that despite GDP contracting 0.2% quarter-on-quarter in the fourth quarter of 2011, economic activity improved early on in 2012 but remains vulnerable to relapses amid still-squeezed consumer purchasing power, tighter credit conditions, tight fiscal policy, and muted global growth. Higher oil prices pose a threat to activity, as do still appreciable Eurozone sovereign debt problems. Modest sustainable growth should develop from the second half of 2012 as moderating inflation eases the squeeze on consumers and global growth improves. Nevertheless, IHS Global Insight has increased its projected GDP growth to 0.5% in 2012, while rising to 1.6% in 2013. Returning to the passenger car market, the SMMT continues to stand by its expectation that the UK market will see a slight contraction in demand during 2012 to 1.92 million units, a 1.1% y/y decline, with a firmer recovery to 1.98 million units in 2013. It adds that this is largely dependent on the state of the economy and could well be influenced by the Chancellor of the Exchequers' budget on 21 March. IHS Automotive believes that sales could dip to around the 1.91-million-unit mark, however, but will return to over 2 million units in 2013