The 1990s proved to be a troublesome time for the UK’s motor industry, and if events in the first half of 2000 are anything to go by, the turmoil is set to continue well into the new millennium.

But despite the gloom, the motor industry will continue to be an important contributor to the UK economy. The passenger car sector (both new and used), together with the commercial vehicle, motorcycle, moped and scooter sectors had a combined estimated retail value of £62.5bn in 1999, whilst approximately 942,000 people were employed in motor manufacturing and related industries.

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By far the largest single component of the vehicle market is cars, which accounted for 83.7% of all new registrations in 1999. By retail value, new car sales (including imports) accounted for 41.4% of total market value in 1999, while used cars represented a further 31.2%.

The UK Motor Market by Sector by Value (£bn at rsp), 1996-1999

Passenger cars

Although sales in the passenger car sector have shown steady growth since 1996-total registrations rose by 9.6% to 2.2m units in 1999-this is mainly accounted for by a sharp rise in demand for imported vehicles. Domestically based manufacturers generally struggled to maintain market share, though there are a few notable exceptions, such as Peugeot.

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The company and fleet market continues to play a major role in the UK car market-indeed the UK is widely regarded as having the most developed company car market in Europe, with sales to business customers accounting for as much as 75% of the new car market.

The UK car-manufacturing sector is dominated by a handful of companies, with the top ten accounting for 78.4% of new car registrations during 1999. Interestingly, however, many of the leading car producers have underperformed the market as a whole, primarily because of the rise in imports. The market leader, Ford, for example, experienced a 2.3% fall in new registrations of its models between 1996 and 1999.

The Competition Commission’s report on new car pricing is likely to conclude that manufacturers are using their dealer networks to keep car prices for private buyers artificially high and thus subsidising the discounts offered to fleet buyers. Consequently, the Government may not extend the Block Exemption, due to come up for renewal in 2002, which will allow dealers to source new vehicles from the Continent, where prices are up to a third cheaper than in the UK.

Key Note predicts that the UK car market will experience moderate growth in volume terms until 2004. This forecast is based on the continuing robust performance of the UK economy. However, UK producers will continue to suffer, due to the increased penetration of imported cars. Moreover, with the likely lifting of the Block Exemption in 2002, competition from so-called grey market imports is likely to damage industry profitability further.

New car registrations and used car sales are predicted to grow by 4.4% to 2.4 million vehicles between 2001 and 2004, while used car sales are expected to increase by just 1.9% to 6.4 million units.

The value of the new car market is expected to remain relatively flat at around £26bn. Factors adversely affecting the market include the expected lowering of new car prices by the leading manufacturers and an expected economic slowdown. The used car sector will also experience only moderate growth over the period, rising by 4.1% between 2001 and 2004, to £20.5bn.

Commercial vehicles

The commercial vehicle market is divided into two main sectors: light commercial vehicles (LCVs) and heavy goods vehicles (HGVs), which also includes buses and coaches.

The UK commercial vehicle industry has been in long-term decline since the late 1980s, when demand fell dramatically as a consequence of the contraction of the UK economy. Forced by the twin demands of declining orders and the rising costs associated with new vehicle development, companies were plunged into a series of annual losses. As a result, the industry underwent a period of unprecedented restructuring, leading to almost the entire UK commercial vehicle sector being sold to foreign concerns and manufacturers began to enter into collaborative agreements with rival groups.

Overcapacity and the greater use of partnerships between manufacturers have inevitably led to greater consolidation within the industry. In the past few years there have been a number of significant acquisitions, including Paccar’s purchase of Leyland Trucks and Volvo’s acquisition of Scania (now the subject of an inquiry by the European Union).

* excludes buses and coaches

Source: Society of Motor
Manufacturers and Traders (SMMT)/Key Note/Trade sources

One of the biggest opportunities for commercial vehicle manufacturers is the Internet and the increased volume of goods that will need to be transported door-to-door. Iveco/Ford, for example, predicts that the value of urban delivery business arising from the Internet could soar from £500m in the year 2000 to around £6bn in 2003.

As a result, the company believes that commercial vehicle manufacturers will have to develop a range of new LCVs that will significantly cut the time required to load and unload vehicles. Already, companies such as Iveco, DaimlerChrysler and Renault are exploring concepts that will meet these new requirements.

Truck makers view the rapid development of e-commerce based business as the most promising new avenue for growth in decades. Moreover, demand for HGVs is also expected to rise, as these will be needed for bulk distribution to supermarkets and businesses and for long-distance haulage.

New commercial vehicle registrations will be limited primarily to the LCV sector. Between 2001 and 2004, new LCV registrations are forecast to grow by 25%, due mainly to the aforementioned increase in transactions involving e-commerce. New HGV registrations, on the other hand, will continue to show only limited growth, rising by an estimated 5.7% over the period. Primarily as a result of the growth in the LCV market, total registrations are predicted to grow by 21.5% between 2001 and 2004, to 356,000 new vehicle registrations.

The commercial vehicle market is forecast to grow by 22.8% between 2001 and 2004, to £8.85bn. The strongest rate of increase over this period will be recorded by imports (up 28.4%).

Motorcycles, Mopeds and Scooters

The motorcycle industry has been the most dynamic of all the UK automotive sectors over the past few years. Worsening traffic congestion and unreliable public transport mean that two-wheeled transport is making a big comeback. In 1999, for example, the number of new motorcycle, moped and scooter registrations grew by 17%, with larger machines and scooters accounting for much of this increase.

The UK market is dominated by imports from Japanese producers and currently the only British-based manufacturer competing in the mass-market segment is Triumph. However, the dominance of Japanese manufacturers, particularly in the lower-powered segment of the market, is being threatened by Italian producers, which have significantly increased their market presence over the past few years.

The issue of parallel or ‘grey market’ imports in the motor industry has gained considerable media attention over the past few years. Motorcycle manufacturers, as with their car producing counterparts, have been accused of keeping retail sales prices artificially high and, as a result, dealers have responded by attempting to source their vehicles from markets where prices are lower.

However, while the future prospects for the industry are undoubtedly good, it seems unlikely that the current high rate of growth can be maintained.

Even so, new motorcycle, moped and scooter registrations are predicted to rise by an estimated 41.2% between 2001 and 2004, with the strongest period of growth expected in 2003 (13.2%). Sales are forecast to grow by 41.2% to £1.32bn for the period 2001 to 2004, mirroring the increase recorded by volume over the period.

Motor components

Consolidation has already significantly reduced the number of players in some sectors of the components market-most notably in brakes and seating.

Vehicle manufacturers are currently reducing the number of their component suppliers, allowing them to create close relationships with certain chosen prime suppliers. It is projected that, within the next few years, most manufacturers will deal directly with 500 suppliers.

Manufacturers will therefore look for more parts from each component supplier. In response, suppliers are turning out more subassemblies incorporating more parts that are assembled and ready for installation.

Key Note forecasts only moderate growth for the UK motor components sector over the next 4 years. Between 2001 and 2004, the total UK market is forecast to rise by 1.6% to £16.1m. However, this figure masks significant growth in the sector’s export capabilities, which are expected to rise by 10.8% to £8.7m over the period.

Distribution

The car retailing market will continue to experience fundamental changes for the foreseeable future. One of the principal drivers of change is the Internet. Already, companies such as Autobytel offer virtual showrooms in the UK and the major manufacturers have reacted by introducing their own websites.

A greater potential overhaul of car retailing is expected to come from manufacturers, either selling vehicles directly to consumers, or at least changing the dealers’ traditional role in the process. Vauxhall’s Internet site, for example, offers cars up to £1,000 cheaper on a select range of models, delivered by dealers to the customer’s door.

Although technology remains a challenge for the future, the current reluctance of consumers to purchase new vehicles is a more pressing problem. It appears that consumers may be delaying their buying of new cars until manufacturers lower their prices.

Whether this will come about via government intervention or through producers responding to consumer demand remains to be seen. However, manufacturers know that, given their current problems, they will need to start shifting new vehicles soon if they are to maintain profitability. Consequently, dealers may experience a surge in demand when prices are adjusted more in line with those in Continental Europe.

For the table of contents and further details on this report click here.

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