UK new car sales reverse with potential bumps in the road ahead

New car sales shifted sharply into reverse gear in April, but experts wondered if this was more than just a rebound after the record previous month when drivers rushed to buy before the imposition of the new vehicle excise duty.

The number of new cars driven off forecourts last month collapsed 19.8% to 152,076 compared the April last year, the Society of Motor Manufacturers and Traders said.

This followed record sales of 562,337 in the key month of March, when not only was demand driven up by number plate changes but also the VED changes, which followed a 0.3% year-on-year dip in February and a 2.9% gain in January.

Car demand fell across all categories, with registrations by private buyers down 28.4%, businesses down 21% and large fleets falling 12.3%.

Not only were petrol and diesel sales down, but alternatively fuelled vehicle registrations declined for the first time in 47 months, albeit by a marginal 1.3%.

But due to March’s strong performance, total car sales so far in 2017 are still up 1.1% year-on-year.

On top of the rush to register new cars and avoid VED tax rises before the end of March, new registrations were also hit by fewer selling days due to the later Easter, said SMMT chief executive Mike Hawes.

Bumps in the road ahead?

While there was enough context to excuse the fall, said economist Howard Archer at IHS Markit, April’s considerable drop in sales maybe suggested the record March performance "could well have been an element of a last hurrah in March’s record car sales performance".

"Nevertheless, the extent of April’s drop reinforces belief that the car sector is going to find life ever more challenging in the UK over the coming months," he added. "And it is notable that it private car sales that saw the biggest retrenchment in April and have been the only sector to see sales fall year-on-year over the first four months of 2017."

There have been media reports this week about a potential new mis-selling scandal that could put the skids on the £40bn car finance market that has been a major catalyst of the motoring boom through the offering of easy debt to buy vehicles.

With almost 90% of new cars bought using personal contract plan (PCP) finance deals where the owner essentially leases a vehicle for three or four years, The Times cited experts who feared that many customers are being sold loans without having the terms properly explained to them, with a financial downturn possibly resulting in "thousands of drivers unable to keep up payments, leaving dealers with a glut of second-hand cars they would struggle to sell".

Shaun Armstrong at online car finance provider Creditplus said the figures will not come as a surprise to the major leasing companies, who have a significant impact on new car sales.

"They have enjoyed record growth over the past five years but that was unsustainable. Now they are looking at ways to maintain volume in a different economic landscape with Brexit on the horizon," he said, adding that the VED changes were not the only reason for diesel registrations falling off a cliff.

"Buyers have been spooked by the planned introduction of a toxin tax on diesel cars and the London Mayor Sadiq Khan announcing an additional charge on polluting diesel vehicles entering central London. Theresa May then showed her disdain for diesel by hinting that the Government is considering introducing a scrappage scheme to incentivise drivers to trade in older diesel vehicles."