Pent-up demand has been and gone?

Comment on today’s SMMT Northern Ireland New Car Sales figures for September 2020.

Northern Ireland’s new car sales recovery appears to have run out of gas at the end of the third quarter. Local showrooms witnessed a 6% y/y rise in new vehicle sales in Q3 which represented the first quarterly rise since Q2 2019.  However, this was driven by sales outperformance in July (+ 17% y/y) and August (+6.6% y/y). Dealers sold 5,010 new cars in September, 2.5% fewer than the same month a year ago.  Indeed, last month’s sales represented the weakest September since the SMMT series began. This suggests that the pent-up demand evident within the July and August figures may have been and gone. A few months of post-lockdown outperformance had been expected, but this upswing now seems to be even shorter and more subdued than originally anticipated. 

Three-quarters of the way through 2020 and new car sales are down almost 35% on the corresponding period for last year.  The 6% y/y rise in Q3 follows a record decline of 76% y/y in Q2 and a 30% y/y decrease in Q1. Q1’s fall was on a par with the previous record quarterly declines in Q3 and Q4 2008. During seven of the last nine months, new car sales have been the lowest for that particular month since the SMMT data series began.  Only July and August have bucked that trend with July posting the best sales (for July) in 13 years.  Like many sectors within the economy, new car sales have entered the fourth quarter with a distinct lack of momentum.

Traditionally new car sales are a bellwether for consumer confidence and by extension the economy. 2020 looks set to be the sixth successive year of flat or falling new car sales with 2014 the last time Northern Ireland dealers posted a meaningful increase. The decline in 2020 so far is twice the scale of the fall in sales in 2008. 2021 will see a meaningful pick-up but to what level remains to be seen. The pandemic, subsequent lockdown and reopening of the economy have seen many sectors grind to a halt and subsequently rebound. But the resurgence of new cases of COVID-19, alongside a tightening of restrictions, will undoubtedly impact on consumer confidence.  Furthermore, with the Job Retention Scheme expiring at the end of October, and unemployment expected to be catapulted higher in Q4 2020 and Q1 2021, consumer confidence for big ticket spending items is expected to remain fragile for some time yet. As in many sectors, lack of demand will lead to job losses.  The local car industry will be no different. Unlike during the last recession, so far there have been no targeted measures (e.g. ‘cash for clunkers’ scheme or VAT reduction) to stimulate demand. Looking ahead, the best the car industry can hope for is a range of environmental incentives to encourage motorists to switch to electric vehicles.  But with many people working from home and shunning the daily commute, those incentives may not be as effective as they once were.

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