Imports of cars to Britain could fall if demand picks up in continental Europe in 2014 (which it should)

Imports of cars to Britain could fall if demand picks up in continental Europe in 2014 (which it should)

Analysts at CAP have suggested that the boom in the UK's car market is partly being driven by depressed demand on the European continent and that recovery to markets there would divert supply from the UK and end its manufacturer driven market growth.

CAP, a specialist in used car model price forecasts, warned that 'German economic recovery could end the UK’s cheap new car bonanza'.

This year has seen unprecedented deals on new cars, with a resulting increase in private retail sales of 16.7%. in the first nine months.

CAP says that soaring new car sales in Britain during 2013 have been spurred by aggressive price deals and other incentives “as manufacturers diverted supply away from European markets that were dead in the water”.

But there are growing signs that Britain's cheap new car boom is on borrowed time, according to CAP Automotive's chief forecaster, Dylan Setterfield.

The main threat comes from Germany, where signs are growing of a car market recovery that will encourage manufacturers to divert more supply to mainland Europe, says Setterfield.

German recovery, says CAP, would not only spell fewer cheap car incentives being offered in the UK but could result in longer waiting times for certain models.

Despite UK registration growth this year, manufacturers would rather sell cars in mainland Europe because changes in exchange rates (weaker sterling) have slashed the profit on every car sold in Britain over the last 12 months, CAP adds.

The analysts also say that manufacturers are eager to meet the pent-up demand that has built across Europe since the financial crisis stopped the market in its tracks. CAP believes that there is pent-up demand in Germany for more than 400,000 new cars, while the figure for mainland Europe overall is estimated at more than 2.8m units.

To meet renewed demand from Europe, production will have to be switched to left hand drive for hundreds of thousands more cars, which will increase lead times for new car orders in the UK as production bottlenecks cause delays.

CAP says that new car prices in Britain – once converted to euros - have dropped to levels that will make diverting output to other markets an option that OEMs will quickly want to take.

Dylan Setterfield said: "Take the median, or typical, list price in our database of GBP25,425 and a manufacturer selling a vehicle for this price in September last year would have returned EUR32,086. In contrast, the same vehicle in September this year would have returned EUR29,646, a reduction of EUR2,440. This illustrates why manufacturers will divert their attention to Europe as soon as they believe the market is picking up there.

"As soon as they see the opportunity for more profitable business elsewhere, there will be a vastly reduced need to offer the kind of incentives to drive new sales in the UK that we have seen this year.

"The signs are that recovery is already beginning to happen in Germany in particular. We tracked a stable used car market in Germany during June and July and then a usually predictable drop-off in demand and prices during August failed to materialise. This kind of behaviour in the used market is often a precursor to improvements in new car sales.

"And new car registrations there also look to be turning a corner. September's year-on-year registration figures were only down 1.2% compared with -5.5% in August and many observers are now expecting a return to registration growth by the end of the year.

"Not only will UK customers see fewer deals on offer, when European recovery does gather pace, order times will increase for many models. Looking back to when demand was increasing in the Eurozone, from late 2009 until 2011 when the Euro crisis left the market in a virtual coma, lead times in Britain grew in some cases to a year or more.

"Pressures on supply could also come from Spain, where a scrappage incentive scheme has just been extended to boost new car sales. The recent extension of that scheme prompted a huge leap in September's registration figures, although any general increase in new car demand looks unlikely in the current economic climate.

"Overall, the picture is of a potential turning point for the new car market in parts of Europe, rather than a definite and sustained recovery.

"But, given that manufacturers are so keen to do more profitable business than they are managing to achieve in the UK, Britain's cheap new car bonanza is now on borrowed time with the only question being exactly when the taps will be turned off."