Automotive in 2023 – a Year in Review

As the year draws to a close, Mike Edwards, Chief Sales and Marketing Officer reflects on the most influential economic and regulatory factors that have influenced the performance of the automotive industry in 2023.

The Economy

• UK Inflation (CPI), which started the year at 10.5%, has now fallen to 4.6%
• The Bank of England ‘Bank Rate’ has risen from 3.5% to 5.25%

Regulation

• The FCA Consumer Duty went live from July 31st

The Road to Net Zero

• Battery Electric Vehicles (BEVs) are on track to take over 17% of the new car market
• The zero-emission target was delayed to 2035 

Car Sales

• New cars - November 2023 saw a 16th successive month of growth for new car registrations, up 9.5% on November 2022 and just -0.1% down on pre-pandemic levels
• Used cars - November saw average used car values decline by 4.2% for three-year-old vehicles, mirroring the fall in October. The correction in values to date still sees average values around 15% above where they were at the start of 2021 for petrol and diesel vehicles, while electric vehicles (EVs), on average, are around 20% lower.

As always, when you reflect on the factors that have guided a year in business, there will always be many factors, internally and externally, that will have influenced the overall outcome. In assessing the year, I have focused on the economic and regulatory factors that, for me, have been most prominent.

I do not want to play down the global crisis we see on our news, the potential impact of agency sales on car retailing, or the myriad of other factors that all play a part in the external environment. However, for me, the seven factors above represent the issues of most relevance to our industry.

The Economy

Inflation has fallen through 2023 and is forecast to return to its target 2% level in 2025, much of it driven by a series of increases in interest rates, which have squeezed many people when it comes to their car finance and especially their mortgages.

There is some evidence of people struggling to service their debts. According to the Bank of England, residential mortgage arrears jumped to a six-year high between July and September. As people’s fixed-rate mortgage terms end, some are likely to find themselves paying more for their mortgage.

In part at least, the squeeze on household budgets created by higher interest rates must be part of the reason for people looking to older used cars as the year progressed.

A bright spot in the economy, the reduction in inflation in the latter part of the year has resulted in increased disposable income for many households.

Regulation – notably the Consumer Duty

A year ago, we were all pushing hard to highlight the need to embrace the FCA’s Consumer Duty ahead of its July 31st launch date. I think it is fair to say that things have largely been quiet since then. However, it is important to stress that the regulator was always clear that July 31st was only the starting point for the Consumer Duty, a speech titled; ‘Consumer Duty: Not Once and Done’ by Nisha Arora, the FCA’s Director of Cross-Cutting Policy and Strategy at the start of November perfectly illustrates, that we will hear more about it in the year ahead.

The Road to Net Zero

It took sixteen years for diesel cars to go from under 10% of the UK's new car market to their peak of a little under 56%. BEVs have gone from zero in 2018 to a 17% market share now. It has been an impressive expansion to watch.

While the government's decision to defer the ban on new ICE car sales to 2035 will have dented consumer confidence a little, it is unlikely to change the trajectory to zero-emission vehicles significantly. Other regulations, notably the Zero Emission Vehicle mandate, which requires OEMs to sell an ever-increasing proportion of BEVs or face hefty fines, will act as significant levers to promote BEVs ahead of ICE options.

BEVs will feature ever more prominently in the new and used market in the months ahead.

Car Sales

2023 has seen a semblance of ‘normality’ in new and used car sales. November saw new car volumes approaching close to pre-Covid levels. At the same time, used car values have fallen back from the unprecedented levels of recent years.

The fall in used values will have tested the classic agility of all used car retailers, and it will be fascinating to see future trends as we enter 2024.

Finally, an Outlook

While the economic forecasts for the UK are less buoyant than previous years, I expect vehicle sales volumes to hold up well. However, I do expect pressure to increase on margins. My observation is based on a return to pre-pandemic pricing levels for new and used car sales which will require a shift in gear from all of us. A combination of stable volumes but reduced margins will require a balancing act in approach. It’s essential that dealers remain equipped to maximise every opportunity brought by a healthy turnover of vehicles. 

With consumer concerns continuing to look to their environmental impact, the growth of EVs can be expected to continue although there will be some variance in the speed of uptake between regions across the UK, mainly to do with the availability of supporting infrastructure. We can expect to see the market share in EVs shift as Chinese brands continue aggressive expansion into Europe.

I briefly touched on the agency model earlier; the jury is still out on how much of an immediate impact this will have in the UK as OEMs have been slower to take up the model than was predicted. This will certainly be one to watch in 2024.

I expect dealers to adjust to the market conditions with the resilience the industry is known for.