Inside the Industry April

Paul Gilligan's latest update on the car industry

Inside the Industry

Coranavirus

There really isn’t another story currently. I’m typing this on March 15th so whatever I say will have been completely overtaken by events before anyone reads it. Already we’ve seen the F1 season abandoned probably until June at the earliest. The day after organisers announced the Geneva Motor Show was going ahead they announced it wasn’t to the fury of manufacturers who lost a fortune as a result. Rally Mexico has been shortened, Rally Argentina postponed and future WRC rounds are in severe doubt. Ferrari are closing both their F1 and road car production departments for at least two weeks.

The virus started in China of course and the effect on the industry there has been dramatic. China is now the Wold’s largest car market (or was until Coronavirus arrived). In February 80% of Chinese car dealers were closed and the remaining 20% did little business with new car sales 92% down on February 2019. Now 80% of the showrooms are open but mainly with skeleton staff and doing little business. This is really hurting manufacturers already reeling for reducing sales in many markets (like the UK) and the vast investments required for the development of electric and self-driving cars.

Now the same virtual stop in car sales is happening in Italy, Spain and to an extent France. Whilst in the UK we don’t (yet?) have the draconian rules being imposed in other countries the industry is feeling the pain already. March is the most important new car sales month of the year in the UK (see below) and dealers already report showroom traffic dropping. I was talking to a Nissan dealer a few days ago who had a healthy number of cars sold for March in advance and having been very short of attractive used car stock so far this year was much looking forward to the part exchanges against new deliveries arriving. Now he says he’s got the cars but few customers and so is running out of space to store them. With this situation looking like it will go on for months yet manufacturers and dealers face a very difficult time and amongst the dealers at least there will sadly be casualties. As there will be in many other industries of course, particularly travel and hospitality.

Ford To Cut Almost Half Its UK Dealers

My regular reader may recall that a long time, maybe about 2 years, ago I wrote the Ford couldn’t carry on with the number of dealers they had. Reason being that over the last 35 years Ford’s share of UK new car sales has dropped from around 33% to around 10%. Although the market has increased over that period it still means that Ford dealer who in the 1980s shared around 500,000 new car sales now share around 200,000 so in simple terms there just isn’t enough cake to go around.

Over time Ford have allowed the number of sales points to reduce by natural wastage from a peak of around 650 dealers to around 400. Now they have announced that they will accelerate the process and by 2025 will have around 220 sales dealers so about 180 will go. Of course Ford are not alone. Two years ago Vauxhall announced the would reduce the number of dealers by about a third and these cuts will come into effect in the next few months. Honda are doing similar.

To the end of February this year the average Ford dealer sold 60 new cars. VW have similar total sales but less dealers so their average dealer sold just over 100 new cars. Top performer was Mercedes where the average was 136 cars per dealer. Audi and BMW also topped 100.

Ford have said their aim is that over 90% of UK customers will be no more than 30 minutes drive time away from a Ford sales point. It is the smaller dealers who will go so if your local Ford dealer is a small one and less than 30 minutes drive from a big one it’s a good bet that small dealer won’t be selling new Fords for much longer. Ford hope these smaller dealers will stay on as service dealers but the general reaction form the dealers so far is only if the deal on the table for the Service Franchise is significantly improved.

With all the problems facing the industry I can’t help wondering for how much longer Ford will be making and selling cars in Europe. General Motors sold out to PSA and seem happy with the outcome. Ford are moving closer to VW and I could envisage VW taking over Ford’s European car business and Ford adding VW’s van business to their own which is already very successful. Which would mean less dealers again of course?

At Least PSA Are Happy Or Were Until Coronavirus Arrived

PSA which is Peugeot, Citroen, Vauxhall, Opel and currently merging also with Fiat Chrysler recently announced record financial results for 2019. Vauxhall Opel came into profit in 2018 after 20 consecutive years of massive losses under General Motors and results improved further in 2019. PSA say they are now “Eager to enter a new era with the projected merger with Fiat Chrysler”. Of course that’s what they were saying a few weeks ago, things may have changed!

But Renault and Nissan Aren’t

In complete contrast Renault announced a loss for 2019, their first for 10 years. The figure was a negative of 141 Million Euros against a profit of 3.3 BILLION in 2018. Renault blamed the fall in demand for diesels in europe and falling sales in China. They also said they expected 2020 to be no better, and again that was before the virus hit. Nissan remain in profit but report they are 74% down on 2018.

For UK Dealers It All Hangs On March

In the UK March is by far the biggest new car sales month with the arrival this year of the new 20 registration plate. So a good performance in March is vital for new car dealers, have a bad March and you pretty well guarantee a bad year. Some come into the month licking wounds from January and February. Alfa Romeo are 23% down against last year, Citroen -15%, Hyundai – 23%, Mazda – 39%, Mitsubishi -43%, Renault -32%, Subaru – 68%, and Suzuki -63%. Ford although only 8% down won’t have enjoyed being beaten by VW in February.

It's a very rough number but if a dealer targets to sell 100 new cars in the month of March they would normally expect to have around 50 order “in the bank” by end February and sell the other 50 during March itself. And that’s the 50 that are in danger at least in part from the arrival of the virus. Will the British public “Keep Calm & Carry On”? Reports are mixed so far. I really hope for my many dealer friends that the damage isn’t too great. It’s ironic that just when we got over the uncertainties of Brexit and the Election this dreadful situation arrived.

More Details Emerge From Aston Martin

The rescue plan for Aston has change a little (!) in the last few days. Because of the market volatility caused by Coronavirus the issue price for the new shares has been slashed by 86% from £2.07 to 30p! The total amount to be raised has increased from £500M to £536M. The consortium led by Lawrence Stroll will now end up with a 25% share rather than 16.7%. They have also agreed to increase the short term loan they are making to the company from £55.5M to £75.5M to give Aston breathing space until sales of their new SUV start helping out.

Mr. Stroll will take over as Chairman as soon as the paperwork is all complete and he obviously intends this to be a “hand on” role. For may years he’s been the Ferrari importer for Canada so doesn’t lack experience and wants Aston to be the British Ferrari”. They are to stop building unsold cars which they then have to discount to sell so production of sports cars will reduce but margins will increase. Aston acknowledge they have some pain, considerable pain, to come to move the current “excess” stock so if you’re looking for a bargain new Aston Martin sports car now’s the time!

Jaguar Plan For A Brighter Future

Jaguar have not had a good time recently. Last year they sold 161000 cars globally which was almost 11% down on 2018. This is a tiny number when compared to the likes of BMW and Mercedes meaning Jag can’t achieve the economies of scale needed to compete on price with their German rivals. Saloons are Jaguar’s big problem. The XF achieved 50% of the 2018 sales at 15000 units (a tiny number) and the smaller XE was 15% down at 26000 units. Even their best seller the F-Pace was 14% down.

Coming soon is a new XJ to be pure electric and in addition there will be a flagship SUV to be called J-Pace, again pure electric. The electric I-Pace will continue for a few years more it is thought. The F-Pace is due a major facelift soon as well, which is important as it’s easily Jaguar’s top seller at 48500 units last year. F Type sports car sold only just over 7000 last year.

So while Jaguar are greatly looking forward to the new electric flagships and facelifted F-Pace they are left to wrestle with the problems of what to do about XE, XF, & F-Type. Can anyone imagine a Jaguar range without saloons and a sports car? You might have to get used to it.

Dealers Rate Their Manufacturers

Every year the National Franchised Dealers Association (NFDA) carries out a survey of the manufacturers they represent, and the results for last year have just been published. The relationship between manufacturer and dealer is a complex one. All both want to do is in the end make money. For the manufacturer he wants the dealers to sell lots of cars but also represent his “brand” properly which includes lots of thing like facilities, staff and marketing to name but a few. The dealer wants the manufacturer to supply cars that people want to buy, promote them properly and price them so the dealer can sell lots at a profit. Obviously there’s lots of room for conflict. In days gone by Ford used to proudly refer to themselves and their dealers as “The Ford Family”. Dealers were often heard to mutter under the breath that there was far too much incest in this particular family!

The NFDA aske dealers to answer 53 questions covering all aspects of the relationship with their manufacturers. Top score went to Lexus who got 9.4 out of 10. They were closely followed by Mercedes on 9.2 then Toyota and Kia tying for 3rd on 8.9.

Manufacturers at the other end of the scale were Hyundai on 3.2 out of 10 (!), Alfa Romeo scored 3.4, Abarth 3.8 and Jeep 3.9.

Mercedes, Toyota, and Jaguar did much better than last year, Suzuki, Mazda. Mitsubishi, Land Rover, Ford and Vauxhall much worse. The last two of course are in the process of dramatically reducing their dealer networks so will no doubt have some very unhappy dealers – turkeys don’t celebrate Christmas after all!

Coventry Urges Motorists to Scrap Cars

If there is an historic centre of the British motor industry it is no doubt the West Midlands and Coventry in particular. I was therefore a bit surprised when Transport for West Midlands announced that they would be offering Coventry motorists £3000 not to help upgrade to a cleaner car but to give up having a car entirely! The £3000 can then be used for car sharing or public transport journeys. What Jaguar Land Rover who must pay a fortune in Business Rates in the West Midlands every year think has not been made public, probably because its not printable?

Electric Car Sales Rise In Europe

There is no doubt Europe is adopting electric cars more quickly than the UK. In January 13% of cars sold in Europe were Electric or Hybrid. In the UK the figure was 11%. However there are vast differences between different markets. In Norway 77% of cars are Electric or Hybrid, Sweden 38% and Finland 28%. Germany, Spain and Italy come in behind the UK. Different tax treatments in different markets have a lot to do with this.

However in spite of all this in 2019 Europe’s CO2 emissions from car rose for the third consecutive year. Reasons are the fall in diesel sales (diesels produce less CO2 than petrols) and the continuing increase in sales of SUVs which because of their greater size and consequent weight and poorer aerodynamics inevitably produce more emissions.

However in the UK concern remains about the lack of charging points and now the cost of some of these. If you charge a Nissan Leaf at home overnight it will cost you around £2.67 for the power to take you 100 miles. If you charge at a public recharging point this will cost you an average of almost £10 with the highest cost from Ionity being £23! Ionity is a joint venture between Ford, VW and Mercedes by the way.

Paul Gilligan

[email protected] www.gilliganvehicleconsulting.co.uk

07785 293222