Shifting Down a Gear

“The poetry of motion! The real way to travel! The only way to travel! Here today—in next week tomorrow! Villages skipped, towns and cities jumped—always somebody else’s horizon! O bliss!”– Toad, The Wind in The Willows.

Although Kenneth Greene’s 1908 novel paints the motorcar as an exhilarating craze, a must have accessory gifting freedom with a thrill in the process, it hadn’t always been the case. Back in 1895 the Hon Evelyn Ellis was the first man in Britain to give in to the temptations of buying a car, he also made the first journey on UK soil afterwards, travelling from Micheldever in Hampshire to Datchet in Berkshire. Concerned that the law stated his new purchase required a man with a red flag to walk in front at a constant pace of 4 mph for the duration of a journey, Ellis simply flouted the ruling. His worry was that such a regulation would stymie the marketing potential for the new horseless carriage and promptly had it overturned the following year. He was a true pioneer for popularising the car in this country, forming the RAC, increasing investment in the industry and even having the speed limit increased to a heady 12 mph.

What is interesting is that Ellis’ new car, was both made and sold to him in France. He had even passed his driving test there. It would be another eight years before engineer Henry Royce and his new business partner, aviator C.S Rolls would start selling cars commercially in the UK. Since then, the industry has grown indescribably. The number of cars on England’s roads increased by a record 600,000 alone in 2015 and figures suggest that there are close to 30 million registered vehicles now in Britain, nearly one car for every two people.

However, after years in the fast lane, car dealerships are having to shift down a gear. It seems a perfect storm has arrived on the nation’s forecourts causing 12 straight months of declining sales.  Falling consumer and business confidence have dented sales figures as the uncertainty of Brexit has left many customers delaying big ticket purchases, making do with their existing vehicle. Uncertainty over the future of diesel has also taken its toll. Sales of such cars dropped 31% last year as consumers worried that newly proposed taxes on diesel vehicles and a long-term air quality plan set out by the government could spell the end for the fuel. Couple this with the extremely slow roll out and major impracticalities of electric vehicles; offering little choice and a sparse amount of charging stations and it easy to see the underlying confusion the consumer faces. Such headwinds have already led The Society of Motor Manufacturers to predict that new car sales this year will plummet by 5-7%, the first annual fall since 2011.

The internet has also had a considerable impact on how we buy a new car. Gone are the days of consumers walking into a showroom with no real idea of what they want, asking lots of questions and putting a salesman through his paces. Today, customers know exactly what they want, having already compared and contrasted online. Research shows 60% of UK car buyers now start online rather than consulting their friends, family or even a dealership.

With the first car in this country having been bought in France, it is with some irony that French manufacturer Vauxhall has been the first to react, announcing that it will close up to a third of its dealerships. KPMG have taken this a stage further by predicting that as much as half of forecourts could close by 2025. Vauxhall is aiming to consolidate its sales force through a smaller number of larger dealers who are more geographically dispersed.

However, manufacturers can take comfort in recent failures to sell cars directly to customers. Hyundai made the first foray into the space in 2016, setting up a click and collect service where customers can simply view the car they want, buy it and have it delivered to their driveway. In terms of views, the idea was a roaring success, with 500,000 people visiting the website. However only 80 cars were ever sold from the scheme showing there is still a need for a medium between the factory and end consumer. Numbers show buyers still visit a forecourt on average 2.4 times before they make a purchase, preferring to still discuss configurations and pay in person.

Indeed, how could Evelyn Ellis spread the word of the new automobile or Toad have ever fallen in love with the “very finest cart of its sort” without being sold the idea first? It seems that the car industry is at a crossroads and although a simple oil change may be required, there is still a lot mileage left in the industry yet. 

Shifting Down a Gear first appeared in the Cumberland Place Newsletter for May 2018. Click here to view a PDF version.

 

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This article is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Any opinions expressed in the Investment newsletter are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

 

Tags: Analysis, Economy, Investment, Market, Newsletter

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