The UK car industry is at a general election crossroads. What are the consequences of the differing outcomes?
There are four possible election outcomes: Majority Conservative, Conservative coalition, Majority Labour and Labour coalition. Assuming that this government lasts a full term, we can establish how the key supply and demand factors may be affected and draw realistic conclusions.
The two specific areas I am looking at are new car sales volumes and used car values:
New car sales volumes are dependent on legislation changes, demand (confidence of businesses to expand, cost of borrowing), and lease rates (dependent on forecast used values).
Used car values are dependent on volumes (already up so the supply is effectively known) and demand (confidence to spend, disposable income).
Legislation red herring?
Legislation changes regarding emissions will certainly change the new vehicle model mixes and manufacturer offerings but not necessarily sales volumes. Some used vehicles will end up being worth less and some more. Changes involving benefit in kind taxations will also just alter vehicle choices rather than the overall volume. Hence for the sake of this argument I’m excluding legislation changes as a key factor.
So the remaining key questions are “How will used vehicle demand be affected over the next five years?” and “what will happen to used vehicle values?” We already know that demand is dependent on just one word: “confidence”, which is ultimately governed by “disposable income”.
What will happen with each of the four potential election results?
Majority Conservative Government
Positive: Economic recovery continues, increased employment, business growth.
Negative: Many don’t feel any better off, public services cut further.
Conclusion: No real change to used vehicle demand leading to falls in values (due to higher volumes), leading to lower forecast values, leading to higher lease rates, leading to downsizing.
Right Wing Coalition (Conservative, UKIP, Liberal etc.)
Very much the same picture as a majority Conservative government with the waters somewhat muddied by a possible European referendum.
Majority Labour Government
Positive: Increases in public spending, increased employment.
Negative: UK debt an issue to business confidence, interest rate rises.
Conclusion: Initial new vehicles sales increases, but interest rate rises would see used car demand fall faster, meaning that used values would fall faster, meaning that lease rates would increase faster and new vehicle sales would start to fall.
Left Wing Coalition (Labour, SNP, Green, Liberal etc.)
This coalition government has the potential for the country to be run by committee, with multiple parties having specific and quite different agendas. It is the outcome that the business community fears the most, but it is also very possible. It is also the one that is the most difficult to understand although you would expect the used vehicle market to be similar to that of a Labour government.
A Tory government or Tory led coalition would see no real changes. Supply changes would ultimately mean lower used values and higher lease rates.
A Labour government or Labour led coalition would lead to an initial boost in new vehicle sales followed by faster used value falls and higher lease rates. This could be made even worse if interest rates were to rise significantly.
Contingency planning has often been absent from many sectors of our Industry and warnings from key forecasters (including me) have often been ignored in the pursuit of more business. With over 30 years of experience in forecasting I believe that I know and have witnessed most of the pitfalls. Vehicle lifecycles, supply and demand are relatively easy to predict, but it’s what the corporates do with the information that is the most important.
Manufacturers, banks, finance companies and leasing companies are often guilty of burying their heads in the sand, particularly in times of growth and investment. UK business has almost recovered from the lows of seven years ago so let’s hope that lessons have been learnt. There should be no more boom times, no more bust times, just more of a stumble?