UK car sales skid lower though electric cars rebound

UK car sales tanked in May and while the industry expects overall sales to remain strong over 2017 as a whole, some experts disagree.

New car registrations of 186,265 in May were 8.5% lower than the same month last year, according to data from the Society of Motor Manufacturers and Traders, which blamed buyers holding back ahead of the general election this week.

This followed a previous month when new car sales plunged 19.8% in April, though many car sales were thought to have been brought forward to March as consumers and businesses looked to beat the changes to vehicle excise duty (VED) that were introduced in April.

However, compared to last year sales are down 0.6% with 1.1m cars sold in the UK so far in 2017, with sales to private individuals down 4.2% in the year to date.

Diesel vehicles saw a large decrease in sales in May, down 20,000, while alternatively fuelled vehicle sales rebounded a decline the previous month with more than 8,000 sales a rise of 46.7% month-on-month to take a new record market share of 4.4%.

The SMMT said almost 50,000 new AFVs have been registered so far this year.

Business and fleet sectors have driven demand, up 5.3% and 2.4% respectively to offset a decline from. However, more than half a million new cars have been registered by private buyers since the start of the year.

Mike Hawes, SMMT chief executive, said: “Although demand has fallen, it’s important to remember that the market remains at a very high level and, with a raft of new models packed with the latest low emission and connected technology coming to market this summer, we expect the market to remain strong over the year.”

However as well as concerns about a bubble in the car finance market, economists have suggested the car sector will face an increasingly challenging environment going forward due to the squeeze on consumers.

Economist Howard Archer at IHS Markit said rising inflation and muted earnings growth that was seeing households’ real disposable income fall was combining with doubts about the effect of Brexit and the wider economy.

"The serious concern for the car sector is that it looks highly probable that the fundamentals for consumers will weaken markedly further over the coming months as rising inflation eats further into purchasing power with the squeeze reinforced by muted earnings growth. It is also very possible that consumers will face a weakening labour market over the coming months," he said last month.

"There is also a strong likelihood that consumer confidence and willingness to buy major items will not only be pressurized by weakening purchasing power but also by increasing concerns over the economy and jobs as growth likely slows and uncertainties are magnified by Brexit coming more to the forefront now that Article 50 has been triggered," he added.

Shaun Armstrong, managing director at car finance group Creditplus.co.uk, said on Monday the impact of the general election was not the main headline, but rather the collapse of diesel sales.

"May figures could well mark the beginning of the end for diesel vehicles, with new registrations down 20,000 last month. Buyers are ditching diesels in their droves and it's hard to see how diesel can recover from what feels like a mortal blow," he said.

"There is so much negative press around diesel at the moment - with proposals to introduce a toxin tax and the Government planning to launch a car scrappage scheme - it's difficult to see anyone choosing diesel over petrol and AFVs right now."