UK car sales drop 6.8% in 2018, face tough months ahead

New UK car registrations dropped 6.8% last year as regulatory upheavals, plummeting consumer confidence and anti-diesel policies took their toll.

The figures, which were released on Monday by the Society of Motor Manufacturers and Traders (SMMT), showed a 5.5% decline in December finished off a year in which a total of 2.36m cars were registered – 12% below the peak in 2016.

“A second year of substantial decline is a major concern, as falling consumer confidence, confusing fiscal and policy messages and shortages due to regulatory changes have combined to create a highly turbulent market,” said Mike Hawes, SMMT chief executive.

Hawes added that policy makers should see the figures as a wake-up call as the industry faces weakening demand amid tough environmental targets and political and economic uncertainty.

Despite this, the SMMT stressed that demand for new cars in the UK is solid, with volumes on a par with the preceding 15-year average, and the market still the second biggest in the EU behind Germany.

The diesel sector took the biggest hit, dropping 29.6% over the full year and seeing sales drop for the 21st consecutive month after December.

Heavy end-of-year discounting by manufacturers and dealerships was likely to have helped boost December's figures a little, said Alex Buttle, director of car buying comparison website Motorway.co.uk, but could not stem the tide.

"Consumer sentiment towards diesel has shifted to the point that to buy a diesel car is a risky move as demand has fallen in the used market too and future values will be unpredictable as popularity has plunged. Sadly, in the current environment, diesel cars could be considered to be valuation time-bombs," Buttle said.

Meanwhile, the pace of growth of plug-in car sales fell behind the EU average as government incentives were stripped away with pure electric vehicle registrations increasing by 13.8% and plug-in hybrids rising by 24.9%.

For the current year, the SMMT predicted a further decline of 2% in overall registrations but added that the outcome of the Brexit deal is likely to be the biggest driver of market performance, with the body making clear its stance that a “no deal” Brexit is not an option.

Economist Howard Archer of the EY Item Club warned that there are "significant challenges facing the automotive sector that may constrain sales in 2019 even as the supply problem eases".

Pointing to a five-year low in GfK's recent consumer confidence survey, he added: "Despite the recent improvement, consumer purchasing power is still relatively limited compared to past norms while confidence is currently fragile with particular caution over making major purchases," he said, .

"Meanwhile, with the savings ratio being very low, consumers may at the very least be keen to avoid further dissaving. The August rise in interest rates may have reinforced consumer caution. Furthermore, lenders have cut back on the availability of unsecured consumer credit."

Due to the uncertain trading climate around Brexit, increasing costs and nosediving demand, the car industry is facing a critical few months, said Richard Gane, director and automotive specialist at management consultancy, Vendigital, with companies expected to keep investing in technologies and skills to enhance the viability of all-electric and autonomous driving.

"The supply chain is taking the brunt of the immediate pressure in terms of stockpiling inventory and the next few months are going to critical. A cliff-edge scenario could force manufacturers to implement more temporary closures or production holidays and it could take up to six months to burn off excess stock in a market facing declining demand.”