United Kingdom Autos Report Q3 2009

The slump in automotive sales in the UK has begun to have a direct bearing on the cash positions of many UK-based carmakers. As BMI examines in this report, these conditions have prompted dealerships to focus on cost management and product diversification in order to help meet their operational needs.

The market saw the introduction of the much-awaited scrappage scheme from mid-May under which a total of GBP2,000 (EUR2,248) is being offered to buyers for trading in their car, if it is ten years old or more, for a new vehicle. The scheme calls for GBP1,000 to be paid by the relevant carmaker with the remaining coming from the government. Although most companies have reported increased orders, new car sales fell by close to 25% year-on-year (y-o-y) to 134,858 units in May. BMI expects the scrappage scheme to result in positive sales growth for most carmakers, but the effect may not be strong enough to offset the plummeting volumes seen so far. As such, we forecast a 17% y-o-y drop in total sales to 1.76mn units for 2009, which is slightly more optimistic than the 1.72mn units expected by the Society of Motor Manufacturers and Traders (SMMT).

Meanwhile, UK-based carmakers have been under increased pressure to keep vehicle production low in order to avoid inventory accumulation. According to SMMT estimates, production fell by a staggering 57.2% y-o-y, down to 281,218 units, over 4M09 as most carmakers continued to operate on reduced capacities.

A further threat to UK autos manufacturing comes from Opel and Vauxhall Motors' sale to Canadian partmaker Magna International. The buyout is likely to lead to almost 2,500 job losses across Europe while the carmaker's plants in the UK and Belgium remain the most vulnerable. Meanwhile, vanmaker LDV has entered into administration after the deal for its buyout failed to finalise with Malaysian company Weststar. In view of these conditions and the continuing fall in export demand, BMI has revised down its vehicle production forecast to a nearly 30% y-o-y fall expected for 2009 against the 20% y-o-y fall anticipated in our Q209 review. Production is likely to remain fairly stable in 2010, more than likely ending the year at a slightly higher level than 2009. However, increased capacity utilisation should put vehicle output on a path of gradual growth until the close of our forecast period (end-2013). Output is likely to reach 1.22mn by that year, still well below the level achieved in 2007.

Small carmakers are likely to be the major beneficiaries of the government's scrappage scheme.

Hyundai, particularly, has the bucked industry-wide trend and reported a 1.7% y-o-y increase in sales to 11,209 units over 4M09. The UK saw the launch of the company's i10 in May 2008, which remains the best-selling model in the mini-vehicle segment. Meanwhile, market leaders such as Ford Motor, Vauxhall, and Volkswagen (VW) have strengthened their positions in the market despite seeing doubledigit falls in vehicle sales. The scrappage scheme could help to reverse these trends in the coming months.