Weakest March For UK Car Sales Since 1998 Amid Cost Of Living Squeeze And Chip Shortages – Business Live

Business confidence in the eurozone has slumped to a 17-month low as rising geopolitical tensions and inflation weighed on the outlook, the latest survey of purchasing managers shows.

The PMI report also shows that eurozone companies raised their prices for goods and servics at the fastest rate on record.

Firms passed on a record rise in their own input costs, as energy, fuel and commodity prices all soared.

The PMI report also showed that the eurozone private sector kept growing last month, but the outlook has deteriorated.

Chris Williamson, Chief Business Economist at S&P Global says firms face a spike in energy and other commodity prices due to Russia’s invasion of Ukraine, worsening supply chain issues and a marked deterioration in business optimism about prospects for the year ahead.

“Exports are already back in decline as the war has directly hit travel and transport, and the downturn in confidence suggests that domestic demand conditions across the eurozone could also come under pressure, notably from consumers via the soaring cost of living, at the same time as companies struggle with a lack of materials.

The outlook for growth has therefore deteriorated at a time when the inflation outlook has worsened.

The squeeze on household budgets is hitting the car sector, says James Fairclough, CEO of AA Cars:

“The cost of living crisis is having an impact on people’s purchasing power, which coupled with the continued interruption in the global supply of parts means new car dealers are facing challenging times.

“Even the arrival of the new number plates at the start of March could not unwind the difficulties the new car market is facing.

“While the volume of sales is down, there is a rapid transformation underway in what drivers are buying. Diesels continue to fall out of favour, and during the first quarter of 2022 they accounted for barely 5% of all new cars sold – half the market share they enjoyed during the first three months of 2021. At this rate, new diesel sales will be all but over long before they are banned in 2030.

“At the other end of the spectrum, electric vehicle (EV) sales continue to go from strength to strength, posting their best ever month in March. More battery EVs were sold in March than were sold in the entirety of 2019.

Richard Peberdy, UK Head of Automotive, KPMG, says the Ukraine war, and Covid-19 lockdowns in China, are leading to ongoing supply problems:

“It was widely anticipated that the automotive sector would take most of 2022 to sufficiently increase component capacity and put an end to the supply shortages that have limited car production during the pandemic.

But the implications of war in Ukraine and heightened restrictions in China add further complexity and exacerbate this challenge.

“Whilst supply shortages persist, production volumes will remain lower than pre-pandemic, and car makers will continue to focus on higher margin models, as well as the electric vehicles market.

Up until now, this has kept forecourt sales relatively healthy, and also driven up prices of used cars. But the rising cost of living poses significant questions about whether consumers will delay, or even curtail, larger investments, such as on a car. The coming months will tell.”

Alex Buttle, co-founder of used car marketplace Motorway.co.uk, says these problems may last months:

“Considering that car showrooms remained shut in March 2021 due to lockdown restrictions, and last month should have seen a boost from the release of the new ‘22 reg plate, a 14% drop in sales in March 2022 is disappointing.

““With little evidence to suggest that supply chain and microchip challenges will ease any time soon, buyers are likely to face lengthy delivery times for new car purchases for the foreseeable future.

Just in: UK car sales in March were their weakest in 24 years, in a ‘deeply disappointing’ result for the industry.

Sales fell 14.3% year-on-year (as flagged earlier) to 243,479 units.

The shortage of semiconductors continues to hurt new vehicle production, meaning there were fewer models on sale…at a time when the cost of living crisis is hitting household spending.

It was a record month for battery electric car sales, with registrations of BEVs up almost 79% compared with a year ago to 39,315.

Diesel sales continued to shrivel, down 55% year-on-year to 13,736 cars.

Industry body SMMT reports that:

• New car registrations decline -14.3% to 243,479 units – the weakest March since 1998, before the UK went to two annual number plate changes – as supply chain shortages constrain deliveries.
• Best ever month for battery electric vehicles with 78.7% growth to 39,315 units, while all electrified vehicles account for one in three registrations.
• March decline results in overall Q1 registrations fall of -1.9% despite rollback of pandemic restrictions.

Mike Hawes, SMMT chief executive, said,

“March is typically the biggest month of the year for the new car market, so this performance is deeply disappointing and lays bare the challenges ahead.

While demand remains robust, this decline illustrates the severity of the global semiconductor shortage, as manufacturers strive to deliver the latest, lowest emission vehicles to eagerly awaiting customers. Placing orders now will be beneficial for those looking to take advantage of incentives and lower running costs for electric vehicles, especially as the Ukraine crisis could affect supply still further.

With increasing household and business costs, government must do all it can to support consumers so that the growth of electric vehicles can be sustained and the UK’s ambitious net zero timetable delivered.”

Mark Sweney

A cyber-attack targeting The Works has forced the retailer to shut some stores, and delayed the resupply of stock and online order deliveries to customers.

The cut-price seller of books, crafts and toys, which operates 520 stores across the UK, said that the security breach of its computer systems has not given hackers access to any customer payment data.

“There has been some limited disruption to trading and business operations, including the closure of some stores due to till issues,” the company said this morning.

“Replenishment deliveries to the group’s stores were suspended temporarily and the normal delivery window for the fulfilment of online orders was extended, but store deliveries are expected to resume imminently and the normal online service levels are progressively being reintroduced.”

Vincent Ni

Russia’s invasion of Ukraine has further dampened the economic prospects for developing countries in east Asia and the Pacific, meaning lower economic growth and higher poverty in the region this year, the World Bank has warned.

The Ukraine factor came on top of the existing risks that the region – home to 2.1 billion people and stretching from China to Papua New Guinea – has been facing in recent years. They included the ongoing Covid-19 pandemic, the financial tightening in the US, and the pandemic resurgence amid China’s zero-Covid policies.

China, which accounts for 86% of regional output, is forecast to expand 5% in 2022, 0.4 of a percentage point less than the World Bank’s October estimate. But in the Bank’s downside scenario, the world’s second-largest economy could grow at just 4%.

P&O Ferries’ sacking of 800 workers last month is continuing to cause disruption.

The BBC reports that sailings on a Welsh ferry route to the Republic of Ireland have been suspended as the operator tries to plug gaps left in Northern Ireland.

That follows P&O’s suspension of services, such as its route between Cairnryan, in Scotland, and Larne, in Northern Ireland.

Here’s the BBC’s story:

Stena Line has cancelled all crossings between Fishguard, Pembrokeshire and Rosslare, Republic of Ireland until 12 April.

This was due to the suspension of P&O’s services, after it sacked 800 staff saying the business was not “viable”.

Stena Line has now moved a ship to Northern Ireland, following concerns food supplies could be affected.

Passengers who usually travel from Fishguard are being advised to travel on the Pembroke service instead, as Irish Ferries is accepting Stena Line customers.

“Due to the suspension of P&O’s services into Northern Ireland there were supply fears in the region,” Stena Line’s Simon Palmer explained.

More here: Stena Line: Fishguard route suspended as ship plugs P&O gap

Increased sales of electric vehicles will also mean more demand for electric charging points.

In January, Volkswagen warned that the lack of a widespread electric vehicle charging network in the UK was holding back the mass adoption of zero-emission cars.

Auto Trader’s Ian Plummer says:

“At the current rate, sales of new EVs will overtake both traditional petrol and diesel sales by 2025. But ministers need to make sure we can accommodate that predicted growth. The government’s recent plan on charging infrastructure set out ambitions for a ten-fold increase in charging points, which is just the kind of commitment we need to reassure buyers thinking about making a purchase.

It would also be good to see a mixture of other incentives offered to consumers, perhaps tax exemptions, free parking zones or exclusive road lane access to make the transition an easier one.”

In February, Resolution Foundation warned that 10m homes don’t have access to off-street parking or a personal garage, so will miss out on lower costs from charging the cars using cheaper overnight electricity.

The rise in petrol and diesel prices to record highs in the last few months have encouraged drivers to switch to electric cars.

The surge in the oil price since the Ukraine war began will have boosted EV demand further, as Ian Plummer, director at Auto Trader, explains:

“Encouragingly sales of electric vehicles (EVs) have doubled compared to last year, but we should also bear in mind the lack of available new car stocks means these figures reflect orders often made several months ago. There was already massive growth in this segment and, if anything, the demand for EVs is now even stronger as prices at the pumps rise on the back of the Ukraine crisis.

Our own marketplace data shows a bigger share of would-be drivers considering EVs since the war began as the resulting rocketing fuel prices make electric cars a more attractive option, despite the upfront price premium.

Good morning, and welcome to our live rolling coverage of business, economics and financial markets.

Semiconductor shortages and the cost of living squeeze have hit UK car sales last month, despite more motorists turning to electric vehicles.

British new car registrations fell about 14% in March from a year earlier, despite the lifting of Covid-19 restrictions last month, preliminary industry data released this morning showed.

That would take registrations to below 250,000, a long way shy of the March average of 450,000 in the decade before the pandemic.

March is usually the biggest month for the auto sector, because the ‘new’ number plates come in. But the pressures on household finances will mean some families will put off getting a shiny new car, as rising food, fuel and energy costs eat into budgets.

Chip shortages continue to hit the sector too, as supply chains continue to struggle after two years of pandemic disruption. UK car production fell 41% year-on-year in February, data last month showed.

As well as struggling to source chips, manufacturers have also been hit by soaring metal costs as the war in Ukraine pushed commodity prices sharply higher.

UK car sales had risen year-on-year in January and February (compared to weak sales in 2021, when the pandemic was hitting the sector), so March’s fall reverses that trend.

EV vehicles are in growing demand, though, as motorists shun diesel.

Today’s report is expected to show that March was the best ever month for sales of battery electric vehicles, with registrations last month surpassing those for the whole of 2019.

The SMMT will release the final figures for March at 9am.

Also coming up today

The latest PMI surveys will show how firms in the UK, eurozone and US fared last month, in the face of rising energy and commodity prices and the ongoing pandemic.

Oil prices are rising, as the US and France call for a significant escalation of sanctions against Russia following the shocking discovery of hundreds of bodies of civilians in towns surrounding Kyiv. Brent crude has gained 1.5% this morning to around $109.

The agenda

• 9am BST: UK car sales for March
• 9am BST: Eurozone services sector PMI for March (final reading)
• 9.30am BST: UK services sector PMI for March (final reading)
• 1.30pm BST: US trade report for February
• 3pm GMT: US services sector PMI for March (final reading)