Car sales fall sharply in July as motor industry warns of flat 2017

Auto trade rattled by fall in consumer confidence and post-Brexit uncertainty

According to economist Jim Power, “despite the still-positive economic outlook, growth in car sales could be low or maybe even flat in 2017”.

According to economist Jim Power, “despite the still-positive economic outlook, growth in car sales could be low or maybe even flat in 2017”.

 

Despite strong topline figures for the year to date, the recovery in new car sales seems to have been shortlived.

New car sales have increased again in 2016, and are now running at 23 per cent higher than the same period in 2015. So far this year, 122,800 new cars have been sold and the expectation is that the final figure for the year will be a reasonably healthy 152,000 total.

In among all that, van registrations (generally considered an even better indicator of the overall health of the car market and the economy as a whole) are up by 25 per cent while HGV sales have risen by 30 per cent.

According to the latest quarterly report by the Society of the Irish Motor Industry (Simi) and DoneDeal, the car market is in rude good health and it has returned almost €1 billion to the national exchequer in just the second quarter of the year.

So why is everyone so gloomy? At the launch of the report, Jim Power, economist and author of the Simi/DoneDeal Report, said “despite the still-positive economic outlook, growth in car sales could be low or maybe even flat in 2017. This slowdown in growth reflects a market approaching, but still lower, than its natural state, after a prolonged period of catch up, but one that is now shrouded in Brexit uncertainty.”

Replacement level

The general assumption is that the Irish car market is moving towards its natural replacement level, which has always been pegged at about 170,000 cars a year by the motor trade, but significantly lower than that by outside economic experts. With sales of 150,000 that should mean that everyone who wants or needs a new car will be buying one, and that means that 2017 holds the prospect of little or no growth for the industry.

That, along with the formless worry over Brexit and what it may mean for the car trade and the broader economy, seems to be reflected in the July sales figures.

July, and the 162-registration period, got off to a storming start, outpacing the equivalent January sales figures for the first week, and leading many to predict that July could become as strong or even stronger, in sales terms, than the traditional January sales rush.

However, as the 10-day figure approached, the steam was already going out of the market, and as of the 21st and week three, July’s numbers are now significantly behind January’s – 21,410 new registrations versus 26,842 in January.

Worse still, January’s sales peaked on the 4th and then held up strongly throughout the month, but July’s sales graph looks more like an unsteady descent of Everest – more than 7,000 sales on the 2nd, followed by a sharp drop with most subsequent days hovering at about the 1,000 sales mark.

A spokesperson for Peugeot Ireland told The Irish Times that “we’ve been tracking consumer confidence numbers and you can see a direct relationship to car sales. Consumer confidence has been trending lower and you can see that it’s having a flattening effect on registrations.”

Consumer sentiment

According to the KBC Bank/ESRI consumer sentiment index, the average Irish consumer was a little more sanguine in early June than in May (with the index standing at 103 points, up from 98 points in May), but those figures were taken before the UK’s Brexit vote, which will likely have significantly muddied the waters.

“The pattern seen in the sentiment survey since the start of the year in which most months move in the opposite direction to the previous month implies that Irish consumers are having significant difficulties in assessing what a constantly changing global and local economic picture might mean for them,” said the ESRI in a statement.

“Such difficulties have increased notably in the wake of the UK decision to leave the EU because of the profound uncertainty as to exactly how and when Brexit might affect the circumstances experienced by the typical Irish consumer. At current levels, the sentiment index suggests Irish consumers are reasonably positive about their economic circumstances.

“That said, the level of the index is little changed from 12 months ago. So the recent trend, which is choppy but largely unchanged, stands in stark contrast to the sharp improvement seen through the previous couple of years. While the very poor sentiment of the crisis has faded, there is little sense that it has been replaced by a broadly based ‘feelgood’ factor that would drive sentiment progressively higher.”

Insurance costs

While the reports shows that costs for motorists are generally falling (diesel down by 12.4 per cent, petrol down by 8.4 per cent, the cost of a new car down by 3 per cent), there is one significant bump in costs and that’s insurance, which has risen by a staggering 38 per cent on average.

Simi president Alan Greene said: “The soaring cost of insurance, especially for young people or for those driving older cars, is also a serious concern. The proposed action on write-offs may also help in this regard but more than that is needed to reduce the cost of motor insurance.

“We believe it’s time for the Government to establish a strong review of the causes of the current high cost of insurance, similar to the Motor Insurance Advisory board that successfully achieved significant insurance cost reductions during the late 1990s. There is a real danger that without such action we will see an increase in the number of uninsured drivers as was the case previously when insurance costs were unacceptably high.”