10-year car sales high flattered by tax changes

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March a 10-year high for NI new car sales

March was a record month for new car sales in the UK and a 10-year high in Northern Ireland. There were 8,556 new cars sold locally last month, just over 1,000 fewer (11%) than the pre-recession peak of 9,564 in March 2006. The near 10% y/y rise in local new car sales last month compared favourably with a UK increase of 8.5%.  However, Northern Ireland’s sales figures are coming off a lower base and follow declines recorded in earlier months.

But new tax rates distorted the picture

New vehicle excise duty (VED) rates came into effect on April 1, which introduces an annual flat rate charge for all cars, bar those with zero emissions, and March’s figures have been flattered by some motorists bringing forward buying a new car ahead of the tax changes. We can therefore anticipate April and May’s figures to be somewhat softer. It is also noted that Northern Ireland’s near double-digit rise in March followed a double-digit fall of 11.2% y/y in February. So, the March figures are perhaps also flattered by some motorists having deferred their purchases from the previous month.

Quarterly figures show modest rise

Looking at the quarterly, figures rather than the latest month’s sales alone, reveals a less encouraging story. New car sales in Q1 (18,962) were just 0.8% above the corresponding period last year. This does though represent the best sales figures for the first quarter since 2010.  Despite this rise, NI new car sales are still some 17% below the Q1 peak of almost 23,000 in 2007.

NI new car sales 2

Overall 2016 was an uneventful year for car sales

Looking at last year, 2016 was an uneventful 12-months for overall new car sales in Northern Ireland with growth broadly flat at 0.4% y/y.  While sales growth was uninspiring at a headline level, 2016 marked the best year for sales for many brands.  This was particularly evident within the premium* brand market with sales rising by 13% y/y to a record high. Conversely, sales of non-premium brands fell by 2%.

NI new car sales

2016 was a record for some brands

2016 was a record year for Land Rover, Mercedes Benz, Audi & Volvo.  Meanwhile BMW, Porsche, Lexus and Jaguar all recorded multi-year highs too. Not to be outdone by the premium brands’ success, the non-premium market saw record sales figures across a number of brands.  These included: Kia, Hyundai and Skoda. Meanwhile the underperformers include Peugeot, Vauxhall and Citroen. These brands recorded their lowest sales of new cars in Northern Ireland since at least 1999.

Premium brands respond well to economic environment

You could be forgiven for thinking that the surge in premium brands means that the Northern Ireland consumer was positively buoyant.  But, as ever, it is more complicated than that.  Part of the answer is of course the ‘consumer sweet spot’ that has been in effect in recent years, with low inflation, low interest rates, and wage rises. But premium brands have also tended to respond positively to the economic environment and to what consumers want – in recent years, this has been SUVs.

‘Shrinkflation’ evident in the car park

This process of responding to consumer needs has seen ‘shrinkflation’ enter the car park. We have also seen it with chocolate bars – smaller Mars and Snickers for the same price, and Toblerone with less triangles – and with the likes of fish fingers, with fewer items in the box.  Manufacturers faced with rising costs often choose to shrink the size or quantity of a product rather than increase the price, in order not to deter consumption. This has been very evident in the car market, particularly with SUVs. The gas guzzling ‘Chelsea Tractor’ such as the BMW X5 and Audi Q5 now have smaller versions in the Q2/Q3 and X1/X3. Manufacturers responded to the ‘cost of living crisis’ by producing very small, lower cost vehicles. Meanwhile some manufacturers (e.g. Renault) have introduced new discount brands (e.g. Dacia). At the opposite end of the spectrum, Jaguar and Maserati have recently jumped on the SUV bandwagon with their F-Pace and Levante models respectively.

Premium brands retain loyalty with SUVs

Premium brands, particularly Audi, BMW and Mercedes have maintained brand loyalty by offering a very wide range of similar SUV products but in different sizes to match consumers’ budgets. For example, BMW’s growth in recent years has been concentrated in the smaller models (1 and 2 series and X1s, & X3s). These now account for close to 40 percent of BMW’s sales in Northern Ireland, and these were models that didn’t exist 10 years ago. So we know that Northern Ireland consumers remain brand conscious, but perhaps aren’t having to stretch themselves as much to buy that BMW or Audi.

How is 2017 shaping up for brands?

So how is 2017 shaping up? With the first quarter of sales figures in it is clear that last year’s trends are continuing. The premium brand market has seen sales accelerate to 15% y/y while sales of the the non-premium brand cars have fallen by more than 2% over the same period.

Maserati amongst highest risers

Maserati (+825%), Bentley (+567%), Ferrari (+200%) and Aston Martin (+133%%) have experienced the highest rates of growth albeit from relatively low bases. Jaguar looks set for a record year with sales up 50% y/y in the first quarter. Meanwhile Mercedes (+24%), Landrover (+17%) and Audi (+15%) look set to eclipse last year’s record sales figures in 2017. Similarly in the non-premium brand market, Skoda (+34%) and Kia (+5%) could experience another record year.

Citroen, Mini and Nissan see big sales drop

Looking at the underperformers: Citroen, Mini and Nissan saw sales drop by 5% y/y in Q1 2017. Steeper declines were evident with Dacia (-8%), Peugeot (-11%), Mazda (-15%), Vauxhall (-25%) and Renault (-27%). The rebalancing of Northern Ireland’s car parks continues with more premium brands and SUVs (particularly smaller ones).

What lies ahead?

New car sales are a key barometer of consumer confidence. But rising inflation presents an uphill challenge for consumer spending in the months ahead. We await the impact of this on retail activity and new car sales in due course.

New car registrations

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