2013-02-22 13:52:41 - Recently published research from Business Monitor International, "United Kingdom Autos Report Q1 2013", is now available at Fast Market Research
We are becoming increasingly bullish on the automotive sector in the UK, with signs of a return to growth in both vehicle sales and production. This has facilitated growth in the supplier segment too, with substantial investment across the supply chain. Further, we have seen the UK increasingly becoming an export hub for many auto manufacturers. BMI believes that the country has a fairly attractive business environment owing to the ease of doing business, strong economic and political institutions, and openness to foreign capital. The labour market is also fairly flexible, and property rights strongly enforced. We maintain a bullish outlook for the sector over our 2017 forecast period.
Over the first 11 months of 2012, passenger car sales in the
UK increased 5.4% year-on-year (y-o-y), to 1,921,052 units. In light of the strong year-to-date sales and ongoing improvements in the country's private consumption outlook, BMI forecasts sales in this segment to increase 6%. Consumer confidence increased moderately over the course of 2012, although we believe that it is still relatively subdued. This has partly driven the rise in passenger car sales in 2012, but we believe that the main drivers have been the large pentup demand in the market and heavy discounting by auto companies.
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Furthermore, a number of auto companies have offered large discounts and offers to potential consumers. While this has had a positive effect on car sales, BMI cautions that it is detrimental to companies' profit margins, and will impact their revenue margins significantly if they engage too heavily in the practice.
Over the first 11 months of 2012, sales of petrol/electric hybrid vehicles increased 5.2% y-o-y, to 22,706 units. Sales of diesel/electric hybrid vehicles increased exponentially, to 1,174 units. In the pure electric segment, sales increased 8.5% y-o-y, to 1,145 units. Sales of hybrids have increased broadly in line with the wider passenger car market, suggesting that the increase has been due to a moderate upswing in consumer sentiment. Also, as people replace their vehicles, we believe many may be tempted to purchase a hybrid vehicle rather than a traditional engine model. We believe that the increase in the other alternative fuel segments has been driven chiefly by the greater availability of such technology and moderate improvements in its usability.
Over the first 11 months of 2012, light commercial vehicle sales declined 6.6% y-o-y, to 230,565 units. In November, sales in this segment contracted by 16.5% y-o-y, to 19,389 units. BMI forecasts a 5% decline in the LCV sales, which we maintain for now.
BMI believes that the UK economy is treading water rather than heading into a deep and protracted recession, with the latest downturn more of a soft patch within a longer cycle of stagnant and uneven growth. Indeed, the latest purchasing managers' index (PMI) data, in particular, suggest that while a contraction is under way, the downturn is fairly mild. This cautiously sanguine picture leads us to believe that we will see something of an abatement in the decline in the LCV segment in the rest of the year. Furthermore, we believe that the year-to-date total has been adversely impacted by the sharp downturn in November sales. We expect to see a moderation in the decline in December. Over the remainder of our 2017 forecast period, we expect to see small contractions in sales in this segment.
Vehicle production in the UK increased 8.4% y-o-y in the first 10 months of 2012. Passenger car production increased 9.7% y-o-y, and commercial vehicle (CV) production decreased 6.1% y-o-y in this period. Many auto manufacturers invest in the UK as an export base. Indeed, in the first 10 months of 2012, 82.4% of vehicles produced in the UK were for export. For the year 2011, this figure stood at 83.7%. This attests to the strength of the production sector, as strong sales growth in non-EU countries drives demand for UKbuilt vehicles. Over the course of 2012, there has been considerable investment in the UK from car manufacturers, including contracts to build new models and improve facilities. Over the rest of our forecast period, we expect this growth to continue, although at a slower pace than seen in 2012 as the market moderates somewhat.
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