UK auto sector struggles in the face of Covid, Brexit and global chip shortages

UK car factories turned out 69,097 units in June, according to the latest figures from the Society of Motor Manufacturers and Traders (SMMT), the lowest June total since 1953, as the global chip shortage, supply issues and new trading rules with Europe continue to hit the automotive sector hard.

Over the first half of 2021, 498,923 units rolled off production lines, a 38.4% decline on the five-year, first-half average and representing a loss of 311,160 cars worth more than £8.5 billion.

Despite the easing of Covid restrictions, manufacturers reported experiencing staff shortages due to self-isolation arising from notification of contacts outside the workplace. SMMT cited an independent study forecasting the negative impact on planned UK car production, primarily arising from the worldwide shortage of critical semiconductors, could be as much as 100,000 units this year.

Used car market

Ramifications of the Coronavirus pandemic, dealer shutdowns, Brexit uncertainty and material shortages in new vehicle production have also contributed to Cox Automotive revising down its used car forecast for 2021.

It is now predicting 6,766,250 used car sales for 2021, a drop of -8.3% compared to the 2000-2019 average.

Philip Nothard (pictured above), insight and strategy director at Cox Automotive, said: “After so much time with their showroom doors closed, dealers were raring to hit the ground running, but unfortunately factors out of their control still hold them back to this day. Most new car models face shortages or lengthy lead times, placing added pressure on a used car market starved of supply.”

One million new car registrations have been lost because of the pandemic, and the current supply issues will remain throughout the summer and likely for the remainder of the year, with Cox reporting there will not be indication of whether the balance between supply and demand is stabilising before Q4.

Nothard added: “By then, the strength of the economy will be clearer as the furlough scheme comes to an end and consumer and business confidence is understood. But that means the industry faces a period of uncertainty over the coming months, and we can’t be complacent about the ongoing threat of Covid-19 and the potential for new restrictions as we head into winter.”

Euros kick off spending

pontin rupert

Separate analysis from Cazana suggests that the used car market has seen a significant boost in the last week with sales volumes up by 26.8% over the previous week. Rupert Pontin, Cazana’s director of insight, suggested this is in all probability a release of pent-up demand from the Euro 2020 period, where consumers were more interested in following England’s fortunes.

“Digital sales enquiry levels are still slowing slightly, so the quality of the enquiries has either improved or the sales teams have been working harder and more effectively to close the deals. Used car stock is still short and the new retail advert listing data confirms that. “All eyes will be on the supply chain in coming weeks to see whether this position can be improved

upon. From a pricing perspective there has been greater stability and retail figures, whilst still strong, have been more reasonable in their daily change rate, which is good news but there is still a need to review market pricing on a day-by-day basis to keep pricing in a place where customers will be attracted to either the online sales process or the still socially distanced retail showrooms.”

Data delivers

Cox research suggests used car retailers are leaning on their data, experience, and knowledge to navigate the current market. According to a recent Cox Automotive dealer sentiment survey, the lack of ex-fleet volume has led to 81% of dealers holding onto part-exchanges due to high retail demand.

Nothard added: “This is further impacting wholesale supply and driving competition for the stock that’s available. Furthermore, 41% of dealers expect this change to continue even when supply improves, suggesting that some dealers’ habits have changed permanently.”

In another Cox Automotive survey, 96% of dealers changed their stock profile strategy because of the pandemic and supply constraints. Dealers are doing this by stocking brands they usually would not hold and stocking higher mileage and older vehicles.

Nothard concluded: “Dealers have shown they’ve become agile and adaptable in these unpredictable market conditions. As a result, days in stock have reduced to 22 days, from an average of 59.7 days in September 2019 (Source: ASE Global). This highlights both the level of retail demand and dealers’ ability to meet it at all costs.”