Brexit and plummeting diesel sales drag UK car registrations to lowest level since 2013

‘Existential threat’: Disorderly departure is not an option for vehicle makers, says Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders

A “perfect storm” of factors resulted in new car sales last year falling to their lowest since 2013 when the economy was still emerging from the financial crisis and recession.

The provisional 2018 figure of 2.36 million units represents a drop of some 7 per cent on the year before and leaves new registrations 12 per cent below the peak of 2.69 million, reached in 2016.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said Brexit had helped to depress business and consumer confidence and was one of a number of problems that caused the decline.

However, he stressed that it would be “unfair” to simply heap all of the blame onto Brexit.

New fuel consumption and emissions regulations have left manufacturers struggling to test entire ranges of models, causing supply shortages, Mr Hawes said.

The continuing controversy about diesel also pushed sales down. Diesel sales collapsed 31 per cent in 2018 and have declined for 21 successive months.

While some consumers have switched to petrol (sales up 8 per cent), hybrid and electric cars, many more are hanging on to their old diesel vehicles, unsure about how to act amid confusing official signals about the future of the fuel.

Mr Hawes added that the “lingering uncertainty” about diesel is continuing to damage sales and urged the government to introduce a “coherent” set of policies to give the trade and new car buyers a more stable outlook. Last year’s “turbulence” had eroded confidence.

Even so, the SMMT has forecast a drop of only 2 per cent in sales for next year – though this is not a no-deal forecast, but one that represents something closer to “business as usual”. The SMMT would not produce a no-deal scenario.

On Brexit, he repeated industry warnings that any deal, including Theresa May’s proposals, would be a matter of “damage limitation”. A no-deal Brexit would be a “catastrophe” for UK vehicle production, Mr Hawes said, with exports accounting for some 80 per cent of British production, the majority of that going to other EU markets.

Weakest year since 2013

Commercial vehicle sales were relatively buoyant, with tax breaks for pick-up trucks helping to keep the fall in sales down to 1.3 per cent. The rise of e-commerce may have helped retain some life in his corner of the market.

The decline in diesel sales has rested in a net addition to the CO2 emissions of new car sales. On a like-for-like basis, diesel cars emit around 20 per cent lower than petrol-engined counterparts.

Mr Hawes pointed to the discrepancy between the Department for Transport’s “road to zero” strategy paper and chancellor Philip Hammond’s withdrawal or reduction in the grant for plug-in hybrids and electric vehicles as an example of the conflicting policies being currently pursued.

Pure electric car production rose by about a fifth, to about 15,000 units but still represent only a tiny proportion of new car sales.

The SMMT said that its members had spent some time examining what might happen under a disruptive no-deal Brexit, but many car imports are through specialist centres such as Immingham rather than the traditional cross-channel routes. There seems to be little sign, as yet, of consumers buying cars in advance of possible shortages, but the SMMT said that a first-quarter sales boost in 2019 was possible. It added that its members had not been stockpiling new vehicles.

On the other hand, UK manufacturing operations have very little scope for warehousing new parts and any disruption to the 1,100 trucks a day coming to deliver parts to assembly lines across Britain would mean line stoppages, a rapid escalation in costs and a threat to future production and investment.

Mr Hawes said the importance of frictionless trade “cannot be overestimated” and that hard Brexit is an “existential threat” to the British motor industry – finished vehicles and components suppliers alike: “No deal is not an option.” Concerns about it, he said, continued to worry and agitate boardrooms here and overseas, and Japanese makers, such as Nissan, Honda and Toyota may feel that the commitments they made to the UK are being undermined.

It would certainly have an adverse impact on employment. On a personal level he suggested some in the industry would favour a second referendum, or Final Say, on Brexit. Mr Hawes said he had not met a single member of the SMMT who favoured Brexit.