04 September 2020

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After nearly six months dealing with the effects of the Covid-19 pandemic, how is the UK car and commercial vehicle market faring, and what have been the effects on the fleet and business sector?

We analyse figures from the Society of Motor Manufacturers and Traders (SMMT), and look at what could happen during the rest of 2020.

Car registrations: dramatic decline followed by first shoots of recovery

The dramatic effect of Covid-19 on the business sector could be seen with registrations down by more than 50% overall year-on-year across fleet and business sectors during Q2 2020 as companies chose to pause procurement until they had a clearer economic picture. In June for example, compared to the same month the year before, sales were down 45.2% to 69,498 units. 

Mike Hawes, SMMT Chief Executive, says it is time the government provided more help: “The government must boost the economy, help customers feel safer in their jobs and in their spending and give businesses the confidence to invest in their fleets. Otherwise it runs the risk of losing billions more in revenue from this critical sector at a time when the public purse needs it more than ever.”

However, in July, there were the first signs of an improvement in fortunes. More than 90,000 new fleet cars were registered in the month, which was 5% higher than July 2019. In the private car market, there was a 20% increase on July last year, which the SMMT claimed was due to pent-up demand post-lockdown. 

The electric vehicle market is showing resilience too. So far this year, pure electric sales are up nearly 175%, with 39,000 models sold, and plug-in hybrid registrations have risen by almost 60% compared to 2019. That said, overall market share is still below 5% for both, but growing quickly: in both June and July market share was more than 9%.

The new car sector will still have a tough year though, with the SMMT expecting sales to be down by around a third, totalling up to £20 billion in lost revenue.

“July’s figures are positive, with a boost from demand pent up from earlier in the year and some attractive offers meaning there are some very good deals to be had. We must be cautious, however, as showrooms have only just fully reopened nationwide and there is still much uncertainty about the future,” adds Hawes.

“By the end of September we should have a clearer picture of whether or not this is a long-term trend. Although this month’s figures provide hope, the market remains fragile in the face of possible future spikes and localised lockdowns as well as, sadly, probable job losses across the economy. The next few weeks will be crucial in showing whether or not we are on the road to recovery.”

Commercial vehicle registrations: growth returns as activity increases

There is positive news in the LCV sector as in July it saw its first month of growth since January, with a 7.1% increase in registrations, meaning nearly 28,000 new LCVs were sold.

Most of the growth was in the larger models with more carrying capacity, with medium-sized vans weighing greater than 2.0 to 2.5 tonnes seeing an increase of 12%, while the majority of vans registered were in the heavier category, with more than 17,500 sold. Less than 1,500 of sub-2.0 tonne LCVs were sold.

Although it is difficult to ascertain reasons for the growth, Mike Hawes says: “With lockdown restrictions rolling back and businesses restarting operations, the van market is beginning to look more positive. Growth is likely to have been driven by pent up demand and the re-emergence of sectors such as construction.

“However, these green shoots of recovery could prove fragile given the uncertain economic situation. With new technology coming to the market and the need for operators to renew their fleets, maintaining overall business confidence will be crucial.”

This reflects the findings in the latest Allstar Business Barometer, where sectors such as construction (with fuel use up 34% in June compared to May, and 12% in July, compared to June) are showing steady increases in activity.

Overall the commercial market is still operating below sales levels of last year though, with registrations down 39% year-to-date compared to 2019. The SMMT reckons that by the end of 2020, some of that ground will have been recovered, with 270,000 LCVs registered – an overall drop of around a quarter.

In the HGV sector, sales are also down significantly, despite road haulage activity bouncing back sharply after the initial lockdown in March. Allstar’s May Business Barometer shows that activity on the roads rose by almost a third (31.4%) in that month as supply chains ramped up activity, but sales of HGVs fell by 73.4% in the second quarter of 2020 compared to the same period in 2019, with 4,151 units registered. 

The impact of Covid-19 was the most influential factor, but the same quarter in 2019 was stronger than usual due to the introduction of smart tachograph regulations that drive demand for new vehicles.

“Such a sharp decrease in heavy commercial vehicle registrations is deeply concerning given the sector’s critical role in keeping the country moving. While it is important to be mindful of the pronounced boost the introduction of new technologies had on last year’s figures, 2020 has been unprecedented,” adds Mike Hawes.

“Given the current economic uncertainties, restoring operator confidence will be crucial in driving the UK’s recovery but also ensuring it is a green recovery, as getting more of the latest high-tech, low emission vehicles onto our roads is key to addressing environmental concerns.”

Used market: activity halved, but values remain healthy 

Activity in the used car market almost halved in Q2 2020, with around one million vehicles changing hands.

Unsurprisingly this decline was at its worst in April, with activity down nearly 75%, and then recovered in the following months until it was 17.5% below comparable levels from the year before in June. In total, the second quarter represented more than 85% of the 1.16 million lost sales so far in 2020.

Mike Hawes comments: “As devastating as these figures are, with full lockdown measures in place for the whole of April and May, they are not surprising. As the UK starts to get back on the move again and dealerships continue to re-open, we expect to see more activity return to the market, particularly as many people see cars as a safe and reliable way to travel during the pandemic.

“However, if we’re to re-energise sales and the fleet renewal needed to drive environmental gains, support will be needed for the broader economy in order to bolster business and consumer confidence.”

One area which is showing some strength is used values. The price, or lease rates, fleets and businesses pay for cars and vans is dictated to a large extent by the health of residual values, and according to used value experts cap hpi, the increase in consumer demand for new cars has created a knock-on effect in the used market.

Even though August is a traditionally quiet month, there has been plenty of activity and a slight rise in overall prices.

In its September Editorial, cap hpi notes: “The used car retail market has remained robust throughout August, making it the third consecutive month since car showrooms reopened, with remarkably strong consumer demand.

“Looking at the retail advertised data received by cap hpi, it is clear that across all mainstream sectors, prices have edged up slightly on average, unsurprising since trade prices have increased overall and consumer demand is so strong.” 

Additional Resources:

https://www.smmt.co.uk/2020/08/new-car-registrations-up-11-3-as-pent-up-demand-helps-lift-market/

https://www.smmt.co.uk/2020/08/new-uk-hgv-registrations-fall-73-4-in-q2-2020/

https://www.smmt.co.uk/2020/08/lcv-market-grows-for-first-time-since-january-with-7-1-increase-in-july-registrations/

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