New car sales fell by 20% in the UK in April 2017. This fall is attributed to the increase in vehicle tax effective on April 1st, 2017. According to the SMMT, the significant decline in new car sales in April was attributed to car buyers bringing forward their purchases ahead to avoid the vehicle tax rate increases effective from April 1st.
Official reports indicate that only 152,076 cars were registered in the UK in April. This represented a 19.8% drop from the April 2016. What’s interesting is the new car sales drop experienced in April 2017 was preceded by a record month. In March 2017, the UK registered over 560,000 new cars.
According to analysts, new car sales are expected to drop further. The car sector should brace for tougher times ahead given the decline was unexpected. What’s more interesting is the decline has affected cars using all types of fuels with diesel cars suffering the sharpest drop of 27.3%.
Under the new VED (Vehicle Excise Duty) rules, new car buyers in the UK pay tax depending on their vehicle’s emissions for the 1st year and then incur a flat charge of £140 for both petrol and diesel vehicles. New car owners who have bought cars worth over £40,000 are expected to incur and an additional surcharge of £310.
The new VED has seen the demand for new cars in the UK fall among businesses, private buyers, and large fleets. The decrease in demand is highest among private buyers. The number of private buyers buying new cars in the UK has fallen by 28.4% to 59,912. In regards to fuel type, the number of new diesel and petrol vehicle registrations dropped by 27.3% and 13.1% respectively. The best selling cars in the UK in April 2017 were the Ford Fiesta and Nissan Qashqai which sold 4,957 and 4,430 units respectively.
According to Mike Hawes, C.E.O. of SMMT, the new VED rules effective on April 1st pushed new vehicle buyers to bring forward their purchases to March 2017 just to avoid additional costs. With that in mind, vehicle purchases were bound to drop in April 2017. According to Hawes, the new car market remains strong despite the decline. He expects the demand to stabilise in the next remaining months of the year.
The HIS Market Chief European & UK economist Howard Archer is however of a different opinion. Archer sees the decline in new car sales as a more long-term problem attributed to the current squeeze being experienced on consumer spending.
The drop in new car sales reinforces the belief that the new car industry will have a difficult time in the future given that private car sales have suffered the biggest drop in April. Private car sales have also dropped consecutively since January 2017. As the purchasing power of UK citizens declines because of high inflation, increasing household debt and stagnant wage growth, Archer believes that the spending power stands to decrease further.
Used car industry players see things differently. According to used car website (AA Cars) Director of Motoring Services, Simon Benson, the current decline in new car sales creates enormous opportunities for used car companies. Benson sees more car buyers in the UK preferring used cars creating a boom in the used car market. Although the decline in new car sales was anticipated in April, the sharp drop-off caught most industry players by surprise.