The new car market in 2024 is in a very different state to that in 2023, as supply returns to normal, and in normal, I mean a level of 'push to market' with many brands. This has also been compounded by the volatile pricing of EVs, both in terms of residual value, and for some direct to market brands, by dynamic new car pricing.
It made me reflect on the pressures that consumers must be feeling at the moment, making a significant commitment when looking at a vehicle that is new (or new to them).
The previous state of the market
Over 10 years ago, many lease providers and fleet purchasers became focussed on the Whole Life Cost model, which was illustrating that, where finance was available, it would not necessarily be the car with the lowest purchase price which would be the cheapest to run over a period of time. It would rather be the vehicles that would cost more initially, but would then be offset by a higher (future) residual value, lower running cost, or a lower tax burden and hence a lower cost per mile travelled.
The current state
Bringing this back to the present day, I believe many consumers are facing this same paradox, especially where we are repeatedly told that the 'average' buyer is more comfortable with a monthly payment than a price to purchase.
What is the right vehicle for me? It is no longer a question of 'what can I afford', but more 'what suits my needs best'?
Those who are not convinced by the EV proposition (me included to be transparent at this stage) would point to the extreme levels of depreciation that these vehicles have suffered, and their higher cost to acquire.
Pro EV individuals would emphasise that the low running costs due to charging are far below the cost of diesel or petrol, and in light of the lower taxation of these vehicles in terms of road fund licence.
In fact, neither are a true balanced view on the decision process. That will most likely come down to the intended use of the vehicle. For the private individual, a new or used lower cost ICE powered vehicle is likely to be better 'value' over their ownership (assuming it is a longer period). Sure, it will cost more comparably to fuel and to tax, but if the mileage is average or below, then the savings of the running costs will most probably not be seen.
For the corporate acquiror (or an individual with access to a salary sacrifice scheme) an EV may be better choice with the tax landscape currently offering incentives (although not as much as many OEMs would like) and with an expected higher than average annual mileage, the cost proposition becomes more balanced.
Certainly, the SMMT 2023 registration data supported the strength of sales to fleet & business as being a key driver for the increase in the new car market, which is now back to over 1.9m.
To put this into context, 57% of new car registrations in 2023 were 'business' acquisitions, vs the remainder as private. This has been a shift since 2022 (where the proportionality was almost 50/50) but admittedly our purchasing habits since 2020 have somewhat changed.
Lack of confidence and transparency
Putting the topic of EV infrastructure to one side, a level of confidence needs to be demonstrated to the customer (whether private or corporate) that their purchasing decision today, is still valid tomorrow, and at present, I don’t think that is the case.
Over the last few weeks we have seen the 'flip-flop' on the treatment of Double Cab Pickups, which for many car buyers will be nothing more than a passing headline in the news, the more deep seated concern for me is that the government are clearly looking at 'tweaking' taxation in real time, and exactly how balanced this decision making process appears is down to your own individual assessment of their fiscal ability.
The uncertainty over the purchasing decision is not all down to the government though. Only this last week I have seen an advertisement from a dealer group in the UK with a premium German brand offering a deposit contribution when a particular new EV car is purchased on finance of over £28k… If I had bought that same car a month before, I would be fuming and probably feeling sick!
This lack of transparency in pricing to the consumer will not help the industry at all. It will not help the consumer to have confidence in the dealer, nor the dealer to have confidence in the OEM. Ultimately the OEM may feel they don’t have confidence within the government and fiscal institutes. But for now, I’m sticking with the car I’ve got!
The next step
If you have any questions regarding the above, please contact Ian McMahon on i.mcmahon@uhy-manchester.com or your usual UHY adviser.
