It’s a good time to be in the automotive industry at present. In 2014, the new car market reached a record value of £43.4bn with new car registrations at 2.5 million units. In December 2015, the Society of Motor Manufacturers and Traders (SMMT) recorded 2.63 million new registrations. This was the fourth consecutive year of growth for registrations, and we believe that this trend will continue into 2016, with new cars becoming more and more popular.
Consecutive growth
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Overall, the UK economy has delivered 11 consecutive quarters of growth, with GDP growth in excess of 2% in 2016. We believe this is sufficient to sustain a strong new car market, and expect this to remain above 2.6 million in 2016. New cars remain keenly priced, meaning that the majority are not being directly sold to customers. Personal contract purchase financing in particular is being used to purchase new cars, as the finance deals being offered are becoming more and more attractive. PCP was below 30% in 2009 but, following a recent boom, is now expected to be recorded at around 80% for 2015.
On a wider scale, according to the SMMT, the UK is the fourth-largest manufacturer in Europe, producing just under
1.6 million in 2014. Along with the UK, Europe as a whole is recovering, with passenger car registrations up 13.7% year-on-year as of November 2015, the 27th consecutive month of growth. The key contributors to this growth were Spain and Italy, rising by more than 20%, while Europe’s powerhouses, most notably Germany, France and the UK, lagged behind. However, the ongoing strength of the pound against the euro is likely to continue to incentivise manufacturers to offload volumes here in the UK in the coming months.
We believe that the dealers listed on public markets will perform better than the wider industry, thanks largely to its growing presence online. In 2015, the flotation of dealers such as Auto Trader, BCA and Marshall Motor Holdings influenced the success of the UK motor industry, and 2016 could also see the IPO of Motorpoint to strengthen the cohort.
Listed companies have also demonstrated an ability to perform strongly when on the public markets. Cambria Automobiles was strongest in this sector, surpassing expected forecasts by 21%. This was largely due to the successful integration of a number of large acquisitions, including three Land Rover franchises based in Barnet, Swindon and Welwyn Garden City. Cambria’s share price rose by 70.2% in 12 months, with an average price increase of 40% across the sector, as the likes of Vertu, Lookers and Pendragon witnessed strong growth.
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By GlobalDataIt’s clear that finance providers are becoming more important in the UK motor industry. Due to the competitiveness of PCP providers, offers are set to become even more attractive in order to gain new customers. Dealers, therefore need to remain ahead of the curve to ensure their offering remains competitive. The success of the likes of Cambria and Auto Trader suggests that public markets are open for business in the sector, and we may see a greater number of listings this year. <
Mike Allen is head of research at Zeus Capital.
