Fleet demand spurs new car market to consecutive growth

The UK new car market rose 2.5% in July to deliver 24 consecutive months of growth, driven yet again by surging fleet demand.

"BEV registrations were up 18.8%, outpacing the 2.5% rise in the overall new car market. A total of 147,517 new cars reached the road last month, marking the best performance for July since 2020 when dealerships reopened after four months of lockdown, the Society of Motor Manufacturers and Traders (SMMT) has reported."

"Fleet registrations once again fuelled the market, helping to counteract the continued slump in private buyer demand. New car sales to larger fleets were up 13.0% increase, hitting a 62.0% market share – up from 56.3% a year ago and 44.6% in July 2022. Registrations to smaller fleets with fewer than 25 vehicles however were down 9.3% with a 1.8% share – down from 2.0% a year ago and 2.1% in July 2022. Combined fleet registrations were up 12.6% to 94,161 units and with a 63.8% share. Private demand continued to diminish, falling by 11.1% to account for 36.2% of deliveries in the month. The SMMT however noted that the growing popularity of salary sacrifice – classed as business sales but effectively replacing private registrations – will have contributed to this decline. Year to date, the market is up 5.5% overall, with registrations by larger fleets rising 21.0%, smaller fleets down 1.6% and private buyer demand falling 11.9%."

"Electrified vehicle demand continued to rise in July – accounting for four in 10 (41.9%) of registrations. Hybrid electric vehicle (HEV) uptake increased by 31.4% to achieve a 14.5% market share, while plug-in hybrids (PHEV) grew 12.4% to take 8.9% of registrations. Registrations of battery electric vehicles (BEVs) were up 18.8%, outpacing the overall market and even the rise in new car demand from fleets. The surge pushed BEV market share to 18.5% – up from 16.0% a year ago but still under the 22% required for carmakers to hit their ZEV mandate target for this year."

"While the private share of the BEV market continues to fall – 17.2% went private buyers, compared with 20.3% last year – private BEV volumes did increase by a marginal 0.9%. Overall, BEVs accounted for 16.8% of the new car market, year to date. The SMMT also spotlighted its latest industry outlook for 2024. While the outlook anticipates overall market growth in 2024, expectations have been revised downwards since April, with 1.968 million new car registrations now forecast by the end of the year. The anticipated BEV share of the market has also been revised downwards to 18.5% from the 19.8% expected in April."

"Mike Hawes, SMMT chief executive, said: “More people than ever are buying and driving EVs but we still need the pace of change to quicken, else the UK’s climate change ambitions are threatened and manufacturers’ ability to hit regulated EV targets are at risk. Achieving market transition at the pace demanded requires greater support for consumers and, with the all-important new number plate month of September beckoning, action on incentives and infrastructure is needed now.”

Fleet and automotive market reaction

"The continued fallback in private demand for battery electric vehicles indicates an urgent need to incentives. Deloitte responded to the figures by highlighting the continued growth from fleet and ongoing reduction in private demand. Jamie Hamilton, automotive partner and head of electric vehicles at Deloitte, added: “However, we are seeing some signals in the market that consumer sentiment is rising. We could see demand from private consumers start to pick up in the second half of the year as the Bank of England recently announced its first interest rate cut since 2020. “Despite the battery electric vehicle sector outperforming the rest of the market, the industry requires continued clarity on the ban of new petrol and diesel car sales so that it can plan investments accordingly. “If the ban on new petrol and diesel car sales is to be maintained or moved forward, we can expect further calls from within the industry for financial incentives on electric vehicles to support demand. In the meantime, for consumers seeking more affordable options, there are cheaper electric vehicle models becoming available, including a number of new brands entering the market.”

"Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), also said the continued fallback in private demand showed the urgent need to “restimulate” the private electric market. “It is encouraging to witness another month of continuous growth in the electric vehicle market. However, the overall market share of electric vehicles, now at 16.8%, still falls short of the 22% required by the ZEV mandate. This is an important consideration for the new government, particularly as they aim to reinstate the 2030 phase-out date of ICE vehicles. “With two years of continuous growth, NFDA urges the new government to remain vigilant on key issues affecting the sector to ensure this momentum continues.”

"And Richard Peberdy, UK head of automotive for KPMG, had this to say: “Benefit-in-Kind and salary sacrifice incentives for business have been the major driver of growth in EV sales and market share for some time now. The evidence increasingly suggests that accelerating private EV sales may require similar incentivisation, particularly if the Government is going to reinstate the 2030 end to new petrol and diesel vehicle sales. “While choices in the new car market are improving, EV prices and the scale and rate of price depreciation when buying from new remain major barriers to convincing consumers to buy a new EV.  Subsequently, many consumers that are looking to transition to an EV are deciding that the used EV market is a more attractive way to do that. “Despite used EV sales growing, the higher rate of stock that is currently coming into the used market is still pushing the price of some models down even further. “All of this context continues to pose big questions regarding how carmakers will meet their ZEV mandate targets.”

"EY also commented on how fleet demand has underpinned the two consecutive years of growth in new car registrations. David Borland, EY UK & Ireland automotive leader, said: “The UK is currently on track for around two-thirds of this year’s new car registrations to be made up of fleet sales, which is a less profitable channel for automakers and a significant shift from historical norms where fleet would be closer to half of the market. This represents yet another financial challenge facing the automotive industry that will continue to impact strategic decisions on channel mix.” And in a forward look for the UK’s EV transition, Edwin Kemp, director, EY-Parthenon Strategy, said: “Given the recent announcement that the Department for Transport intends to revert the ban on sales of new petrol and diesel cars back to 2030, it is imperative that regulators and manufacturers work collaboratively towards this target. For example, providing adequate incentives for consumers to make the switch will likely remain a critical facet to the UK’s EV transition, particularly if OEMs are to meet ZEV mandate targets and avoid significant penalties.”

"Finally, Philip Nothard, insight director at Cox Automotive, said: “The UK’s new car market continued its growth in July, marking 24 consecutive months of expansion. This increase was primarily driven by the fleet sector, which, while crucial, underscores a potential risk. A heavy reliance on this segment distorts reality – a healthy retail market is equally vital for manufacturers’ long-term profitability. Although BEV uptake is rising, it still falls short of mandated targets. However, the potential for BEVs is significant, and we expect them to play a major role in the market outlook for 2025."

“It is too soon to know what impact, if any, the new government’s growth plans will have on consumer confidence, though the Bank of England’s base rate reduction last week was a positive and welcome sign. Our baseline forecast is marginally more optimistic than the SMMT’s projections, but we continue to monitor movements closely and caution that Q4 could see some dramatic movements as manufacturers manoeuvre to avoid ZEV penalties.”

*Article source: https://fleetworld.co.uk/fleet-demand-spurs-new-car-market-to-two-straight-years-of-growth/