Abstract
The slump in automotive sales in the UK has begun to have a direct bearing on
the cash positions of many
UK-based carmakers. As BMI examines in this
report, these conditions have prompted dealerships to
focus on cost
management and product diversification in order to help meet their operational
needs.
The market saw the introduction of the much-awaited scrappage
scheme from mid-May under which a
total of GBP2,000 (EUR2,248) is being
offered to buyers for trading in their car, if it is ten years old or
more, for a new vehicle. The scheme calls for GBP1,000 to be paid by the
relevant carmaker with the
remaining coming from the government. Although
most companies have reported increased orders, new
car sales fell by close
to 25% year-on-year (y-o-y) to 134,858 units in May. BMI expects the
scrappage
scheme to result in positive sales growth for most carmakers,
but the effect may not be strong enough to
offset the plummeting volumes
seen so far. As such, we forecast a 17% y-o-y drop in total sales to
1.76mn units for 2009, which is slightly more optimistic than the 1.72mn units
expected by the Society of
Motor Manufacturers and Traders (SMMT).
Meanwhile, UK-based carmakers have been under increased pressure to keep
vehicle production low in
order to avoid inventory accumulation. According
to SMMT estimates, production fell by a staggering
57.2% y-o-y, down to
281,218 units, over 4M09 as most carmakers continued to operate on reduced
capacities.
A further threat to UK autos manufacturing comes from Opel and
Vauxhall Motors’ sale to Canadian
partmaker Magna International. The
buyout is likely to lead to almost 2,500 job losses across Europe
while
the carmaker’s plants in the UK and Belgium remain the most vulnerable.
Meanwhile, vanmaker
LDV has entered into administration after the deal for
its buyout failed to finalise with Malaysian
company Weststar. In view of
these conditions and the continuing fall in export demand, BMI has
revised
down its vehicle production forecast to a nearly 30% y-o-y fall expected for
2009 against the 20%
y-o-y fall anticipated in our Q209 review. Production
is likely to remain fairly stable in 2010, more than
likely ending the
year at a slightly higher level than 2009. However, increased capacity
utilisation should
put vehicle output on a path of gradual growth until
the close of our forecast period (end-2013). Output is
likely to reach
1.22mn by that year, still well below the level achieved in 2007.
Small
carmakers are likely to be the major beneficiaries of the government’s
scrappage scheme.
Hyundai, particularly, has the bucked industry-wide
trend and reported a 1.7% y-o-y increase in sales to
11,209 units over
4M09. The UK saw the launch of the company’s i10 in May 2008, which
remains the
best-selling model in the mini-vehicle segment. Meanwhile,
market leaders such as Ford Motor,
Vauxhall, and Volkswagen (VW) have
strengthened their positions in the market despite seeing doubledigit
falls in vehicle sales. The scrappage scheme could help to reverse these
trends in the coming months.
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