Though soaring fuel prices, tighter bank funding and worsening economic prospects have hit UK car sales,  some niche areas will be less affected by recent events, an analyst said on Tuesday.

According to Datamonitor automotive analyst Mudit Gupta, the fleet leasing sector and areas of aftermarket sales have, in fact, shown signs of growth.

Data from European vehicle manufacturer's association, ACEA, showed Europe's new car registrations extended their fall of 7.3% in July to an unprecedented 15.6% dip in August as consumers cut back on discretionary spending, particularly big-ticket purchases. ACEA's September figures are due out later this week.

"Consumers are avoiding automotive purchases, in particular, due to the fear that the US economic crisis will continue to spread, combined with a sharp increase in fuel prices," said Gupta.

"Many consumers have resorted to deferring new car purchases, delaying their car servicing and avoiding unnecessary driving.

"Furthermore, with financial markets tightening, those consumers wishing to purchase cars on finance schemes are likely to find such purchase options less attractive," he added.

He said 4x4 (SUV) vehicles' share of new car registrations fell in the first half of 2008 plus there was a noticeable reduction in average engine size of the vehicles sold in the period. Sales were hardest hit at the top of the market and the defined switch towards smaller cars also had a negative impact on vehicle manufacturers' profitability, as larger cars tend to carry higher margins.
The greatest declines are being felt in the mature and developed western European markets, Gupta said.

"This is likely to prompt a sort of balancing act whereby manufacturers will try to offset these decreases with continued growth in the emerging eastern European and Russian markets. However, even these markets have slowed of late," he noted.

He said the aftermarket automotive parts industry would not escape the effects of the downturn either. With high fuel costs and tight household budgets, Datamonitor expects a decline in average car mileage in 2008 and 2009, consequently reducing aftermarket product replacement rates and decreasing overall aftermarket volume.

Motorists are also forecast to increase service intervals and delay vehicle repairs in order to reduce expenditure.

"While it is difficult for motorists to put off the replacement of 'distress' products - parts such as batteries, tyres, exhausts, which tend only to be replaced when they fail - motorists can delay the replacement of many other parts and accessories," Gupta said.

However, not all appears bleak in the industry, he added.

The fleet leasing market is continuing to show signs of sustained growth in nearly all European markets with growth coming largely from small and medium-sized companies. To defend against the rising total cost of ownership and maintenance, corporate customers are still turning to operational leasing with maintenance management.

This, in turn, is fueling the continued growth of company cars. In fact fleet sales will act as a growth engine for many vehicle manufacturers, especially in an otherwise dull new car market.

"However, even the operational leasing market will not be immune from difficulties in the financial markets, with potential supply-side issues as many larger lessors are controlled by the major banks," Gupta said.

In Datamonitor's view, in the short to medium term the market will continue its downturn, with lower car sales. However, in the medium term the analyst expects the market to bounce back.

"In the meantime, the market will see a wave of consolidation favoring the dominance of global players and badly affecting the smaller domestic players, Gupta said.
"The outlook for the European fleet leasing market remains optimistic, while nearly all markets will see an increased penetration of operational leasing and overall company car parc.
"For the European automotive aftermarket the outlook is one of cautious optimism - where the aftermarket value, cushioned by crash-repair products, will continue to show mild growth," he added.