Today has opened with not so good news for a sector of the UK economy that has been troubling us for the last year or so. From the SMMT or Society of Motor Manufacturers and Traders.
The UK new car market declined in March, according to figures released today by the Society of Motor Manufacturers and Traders (SMMT), with registrations falling -15.7% compared with the same month last year. March 2017 was the biggest month ever for new car registrations, as buyers seized the chance to purchase cars before new Vehicle Excise Duty (VED) rates came into force in April last year. However registrations are still running at a historically high level and last month’s market was the fourth biggest March on record.
As you can see they are in a rush with explanations but we do get some more perspective from this.
New car registrations have fallen for the 12th consecutive month, with year-to-date performance down -12.4%.
The domestic car market has been contracting for a while now and sadly we have to review a scenario that involves government meddling as we note this.
Continuing the recent trend, diesel registrations declined in March, down -37.2%
So far this year diesel sales are down a third from 361,000 in 2017 to 241,000 this year as people wait to see what government policy will be in this area. After the Volkswagen scandal people are much less likely to believe the industry that the new diesels are clean and of course that adds to people like me who were pushed into clean diesels by government company car tax policy back in the previous decade only to discover that by clean they meant poisoning myself and other Londoners.
Whilst sales of hybrid cars are doing better I wonder if more and more buyers are wondering how green they really are?
In the first quarter of this year 146,614 of these vehicles hit British roads, an increase of 2.7%, as the inclement weather appeared to lead to a boost in registrations.
There are two issues with the green agenda here in my view. Firstly the resources cost of a new car regularly gets ignored and secondly the technology uses some relatively rare elements.
Returning to diesels this is also a problem much wider than for the UK. From Reuters.
Volkswagen AG (VOWG_p.DE) has paid more than $7.4 billion to buy back about 350,000 U.S. diesel vehicles through mid-February, a recent court filing shows. The German automaker has been storing hundreds of thousands of vehicles around the United States for months.
Volkswagen has 37 secure storage facilities around the United States housing nearly 300,000 vehicles, the filing from the program’s independent administrator said.
Should these now be subtracted from German exports, production and GDP figures?
The SMMT tells us this.
Some 200,000 people are employed in new car retail alone, while UK-based car finance firms employ over 45,000 more, with an annual £12.5 billion economic contribution. On the road, the vehicle fuel industry supports 40,000 jobs, and a further 347,000 are employed in vehicle servicing and repair.
The fall in sales will impact on production but not as much as you might think as we mostly export what we make and some of these numbers are good as this from the 29th of March highlights.
More than a quarter of a million engines produced by British factories in February.Exports jump 16.1% in the month as 157,880 units head overseas – 62.0% of all output. Engine manufacturing up 10.3% so far this year as strong start to 2018 continues.
There was some positive news from Vauxhall yesterday.
PSA, which last year acquired Opel/Vauxhall from General Motors (GM.N), will build Peugeot and Citroen models as well as the next Vauxhall Vivaro van in Luton, north of London. Production will rise to 100,000 vehicles from 60,000 in 2017. ( Reuters).
There is an interrelation here in addition to the obvious as we note that via the growth of car financing the car companies now effectively have banking subsidiaries. From Bloomberg.
Moody’s cut Barclays’ long-term issuer and senior unsecured debt ratings to Baa3, or one step above junk, from Baa2. The bond grader assigned a stable outlook to the ratings for Barclays. Rival Deutsche Bank AG is currently rated one notch higher.
However, the ratings agency gave the British lender a stable outlook and highlighted its “strong franchises in U.K. retail, business banking and global credit cards.”
Things are not so hot when you are a notch below my old employer Deutsche Bank. But I note that the credit agencies suggest times are good in domestic credit as when have they told us that before?
Purchasing Managers Indices
This morning Markit have completed their sequence of surveys and have told us this.
March data signalled a slowdown in business
activity growth across the UK service sector, with
the latest expansion the weakest for over one-and a-half
years. However, survey respondents noted
that snow disruption and unusually bad weather
conditions in March had been a key factor holding
back business activity growth.
The poor old weather always gets the blame for bad news! Some areas will have benefited ( energy suppliers ) but they are invariably silent. I am sure there was some impact via not being able to get to work but more deeply I wonder if this reflects the fact that some output for construction comes under services. We have noted this before when a large company was shifted from services to construction a few years back. Records and statistics seem to be rather malleable.
Moving onto the wider impact we were told this.
“The UK economy iced up in March……..The PMI surveys collectively
signal a quarterly GDP growth rate of just under
0.3%, down from 0.4% in the fourth quarter, albeit
with the rate of growth sliding to just 0.15% in
We will have to see as the last time they told us the UK economy had lurched lower post the EU leave vote Markit ended up with a lot of egg on its face. If we look back to weather related issues it reversed quickly back in 2010.
Encouragingly, in January 2010 and
December 2010, the PMI fell sharply due to heavy
snow but in both cases the decline was more than
reversed in the following month.
There is a fair bit to consider here. UK manufacturing seems to be still doing okay in spite of the woes of the domestic car market ( partly because we import so many cars) and engine production is strong perhaps because of petrol engine shortages in Europe. Construction was hit by the weather and whilst this seemed to miss manufacturing it did hit services. So we seem likely to see lower first quarter GDP numbers which after a panic will probably then bounce back.
However if we look at some official statistics also released today at the individual level economic growth has been less than the aggregate.
Gross domestic product (GDP) per head grew by 0.8% in real terms in Quarter 4 (Oct to Dec) 2017 compared with the same quarter a year ago.
On this metric we have only grown by 3% since 2008 and if we continue and shift to income we see this.
Real household disposable income (RHDI) per head increased by 1.0%; ( on a year before)
Slightly odd if we look at wages and inflation until we note it was this.
Furthermore, net property income (in nominal terms) contributed 1.0 percentage point to RHDI per head, leading to an overall positive position. Property income is not (as might be suggested by the name) the income generated by the ownership of buildings (rental). It is in fact, made up of interest, the distributed income of corporations (dividends, repatriated profits and so on) and rent on land.
Overall it is up 4.1% since 2008. So now we shift from wondering about a slow down to mulling how little we have grown at all.
Me on Core Finance TV