cga - we car markets - july update

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Automotive Research
Sabine CJ Blümel
Monday, 17th
July 2017
Sabine CJ Blümel
Principal
CGA (UK) LLP
sabine@cjblumel.com
+44 7785 301 588
Creative Global Advisers
(UK) LLP
64, Holland Park
London W11 3SJ
W Europe car market
July update
Market keeps growing despite fewer working days and decline in UK
WE car registrations: +1.4% in June; +3.7% in 1H17; +2.9% in 2017E
• The WE pc market was running at a June SAAR of 14.38m, down 1.0%
mom/from June’s 14.52m and only 2.0% below March’s 14.67m, the strongest
month since November’09 (14.78m). YTD SAAR of 14.33m topped FY16’s 13.97m
by 2.5% and was 1.8% below the 2000-07 LT pre-crisis level of 14.69m. In 2Q17,
the SAAR thus declined 3.7% qoq to 14.09m, from 14.63m in 1Q17. (See pp.3-12.)
• Italy and Spain continued to be the most dynamic of the large Europen
markets, with resp. YTD growth rates of 8.9% and 7.1%, though they are still
running almost 15-20% below LT pre-crisis trend.
• In Germany, a 3.5% decline in June resulted in a 3.1% increase in 1H17. YTD
SAAR of 3.46m was 3.1% better than FY16’s 3.35m and 4.7% higher than the 2000-
07 LT pre-crisis level of 3.3m.
• French car registrations increased 1.6% in June and 3.0% to 1.14m in 1H17.
YTD SAAR of 2.10m was up 4.4% on FY16’s 2.02m and 0.9% on the 2000-07 LT
pre-crisis level of 2.09m.
• The WE car market is set to decelerate in FY17E and grow 2.9% to 14.38m. The
expected moderate FY17E increase of 405k units should again be spearheaded by
Italy, Germany and Spain, and be negatively affected by a decline in the UK.
• UK car registrations declined -4.8% in June, resulting in a -1.3% dip to 1.40m
units in 1H17. While the vote for Brexit seems to have had only limited impact on
the UK car market so far, the change and increase in road taxation for new cars
purchased after 1st April has greatly distorted sales over the past few months.
• UK short-term outlook: The Brexit vote’s fall-out of a drastically weaker and volatile
sterling should lead to a sharp deceleration in GDP growth and private consumption.
The UK car market is expected to have peaked at 2.69m in FY16 and to decline
by -5.5% to 2.54m in FY17E. A weaker pound is responsible for sharp increases in
sticker prices as 90% of cars sold in the UK are imports. (See pp.10-12 for details.)

Sabine CJ Blümel – Automotive Research 17/07/2017
CGA (UK) LLP sabine@cjblumel.com +44 7785 301 588 Page 2
Table of Contents
Western Europe car market ..............................................................................................................................................3
Germany........................................................................................................................................................................6
France............................................................................................................................................................................7
Italy ................................................................................................................................................................................8
Spain..............................................................................................................................................................................9
UK update....................................................................................................................................................................10

Western Europe car market
+1.4% in June
+3.7% in 1H17
In June, WE passenger car registrations increased 1.4% yoy to 1.42m, after 6.8% in
May, resulting in a in a 3.7% increase to 7.79m in 1H17. A 7.5% increase to 3.94m in
1Q17 was followed in 2Q17 by a flat market at 3.86m, caused by a sharp swing in the
UK market. Headline figures in May benefited from an additional working day yoy in most
markets, whereas June figures were affected by fewer working days in several key
markets.
YTD SAAR of 14.33m In June, the SAAR weakened again, albeit only slightly, to 14.38m, down 1.0% mom/from
May’s 14.52m and was only 2.0% below March’s 14.67m, the strongest month since
November’09 (14.78m). YTD SAAR of 14.33m topped FY16’s 13.97m by 2.5% and
was 1.8% below the 2000-07 LT pre-crisis level of 14.69m. In 2Q17, the SAAR thus
declined 3.7% qoq to 14.09m, from 14.63m in 1Q17.
All Big 5 advance
strongly in YTD
Germany +3.1%
France +3.0%
UK -1.3%
Italy +8.9%
Spain +7.1%
Germany, Western Europe’s largest car market declined 3.5% in June, resulting in a
3.1% increase to 1.79m units in 1H17. YTD SAAR of 3.46m was 3.1% better than FY16’s
3.35m and 4.7% higher than the 2000-07 LT pre-crisis level of 3.3m. French car
registrations increased 1.6% in June and 3.0% to 1.14m in 1H17. YTD SAAR of 2.10m
was up 4.4% on FY16’s 2.02m and 0.9% on the 2000-07 LT pre-crisis level of 2.09m.
The UK car market declined -4.8% in June, resulting in a -1.3% dip to 1.40m units in
1H17. YTD SAAR of 2.56m was 4.7% below FY16’s 2.69m and 4.8% above pre-crisis
LT level of 2.45m. In 1H17, Italian car registrations increased 8.9% to 1.14m and the
SAAR of 1.99m was 9.1% higher than FY16’s 1.82m, but remained 14.8% below the
2000-07 LT pre-crisis level of 2.34m. YTD, Spanish car registrations increased 7.1% to
0.67m and the SAAR of 1.20m was up 4.4% from FY16’s 1.15m and remained 18.9%
below the 2000-07 level of 1.45m. (See discussion of the Big Five on pp. 4-12.)
Economic indicators
continue to improve…
…Eurozone economy
Market set to decelerate
sparply…
…to 2.9% to 14.38m in
FY17E
In the Eurozone, GDP growth continued to accelerate, from 0.5% qoq in 4Q16 to 0.6 %
qoq in 1Q17, and is expected to accelerate in FY17E, from FY16’s 1.7%. Indeed,
consumer and business indicators have continued to improve, with the former hitting a
10-year high in May and the latter a six-year high in April. However, in 2017 and beyond,
we see considerable downside risks for the Eurozone economy related to Brexit (weak
sterling and economic slow-down in the UK), elections in several countries (Germany
and Italy) and possible disruptions to international trade, mainly due to president Trump.
In addition, a pick-up in inflation (base effect, recovery in commodity prices) should have
a dampening effect on disposable income and thus on private consumption, to date a
main driver of GDP. For the UK, GDP growth is expected to decelerate from a (restated)
1.8% in FY16, to 1.7% in FY17E and 1.3% in 2018E. We expect that the WE car market
is set to decelerate from FY16’s 5.8% to 2.9% to 14.38m in FY17E. In FY16, the increase
of 770k vehicles was spearheaded by Italy, Germany and Spain, whereas the expected
more moderate increase of 405k units should be driven by more moderate increases in
Italy, Germany and Spain, but be negatively affected by a decline in the UK.
Competitive pressures
set to intensify as the
markets slow
During the four-year recovery, the WE car market remained overshadowed by tough
competition and pricing pressures. Indeed, as the market is heading for a considerable
slow-down, discounts have reportedly increased to some 20% in core markets, fleet
sales are taking over momentum from retail sales and HH leverage is increasing. In
addition to record discounts, special deals and cheap financing, OEMs and dealers have
increasingly resorted to tactics such as pre-registering. Since July‘16, the OEMs’ woes
have been exacerbated by a weaker pound and the prospect of a declining UK market.
Polarisation in demand The trend of polarisation in demand into premium and discount brands and products has
been intact for the past 20 years. Driving forces have been the downsizing on the part of
the premium brands and an improvement in quality of discount branded products. This
has dramatically eroded the market position and share of European mainstream brands
such as GM’s Opel/Vauxhall and Ford, and local champions such as Renault, Peugeot,
Citroen and Fiat. The mainstream brands of the VW group have incurred a reversal in
their market outperformance since the break of the diesel scandal in September ‘15.

W Europe – monthly SAAR1
vs. trend (Oct’08–May’17) W Europe – pc registrations (1998-2019E)
(1) SAAR according to calculations by LMC Automotive. Source: ACEA, LMC Automotive, CGA
(UK) calculations
Source: LMC Automotive and CGA (UK) estimates
W Europe – pc registrations (1961-2020E) Eurozone – real GDP and priv. consumption (2007-19E)
Source: ACEA, LMC Automotive and CGA (UK) estimates Source: Oxford Economics, IMFand CGA (UK) estimates
W Europe – depth of recession – 2008-20E volume
decline vs. 2007
W Europe – current recession in historic context
Depth1 Duration
Trend growth
rate
(Units m) (%) (years) (%)
1970 - oil shock -1.15 -12.4 < 3 5
Early 1980s recession -0.75 -7.0 ~ 6 3-4
1993 recession -2.26 -16.8 ~ 5 2-3
Current crisis (E) -3.26 -22.0 ~13 1-2
Source: LMC Automotive and CGA (UK) estimates Source: LMC Automotive and CGA (UK) estimates

Premium brands, Japanese and discount brands – WE
market share (’92-’17*)
Mainstream brands: VW group (excl. Audi & Porsche),
Opel/Vauxhall, Ford, FCA – WE share (’92-’17*)
(1) Premium brands: BMW, Mini, Mercedes-Benz, Smart, Audi, Lexus, Porsche, Jaguar, Land
Rover, Volvo, SAAB, DS and super-premium brands. (3) Discount brands: Kia, Hyundai, GM’s
Chevrolet, and Renault’s Dacia & LADA. (2) Exl. Lexus (*) YTD=Jan-Jun. Source: Association
Auxiliaire de l'Automobile, ACEA, CGA (UK) calcs
(1) VW mainstream brands: VW, Seat, Skoda. (2) FCA: Fiat, Lancia & Alfa Romeo. Since 2012
also Chrysler & Jeep. (*)YTD=Jan-Jun. Source: Association Auxiliaire de l'Automobile, ACEA,
CGA (UK) calculations
PSA & GME – WE share (’92-17*) PSA and Renault group – WE share (’92-’17*)
(1) (1) PSA: Peugeot, Citroën & DS brands (2) GM Europe: Opel, Vauxhall, Chevrolet and other
US GM brands. (*)YTD=Jan-Jun. Source: Association Auxiliaire de l'Automobile, ACEA, CGA (UK)
calculations
(1) PSA: Peugeot, Citroën & DS brands; (2) Renault group: Renault and Dacia brands.
(*)YTD=Jan-Jun. Source: Association Auxiliaire de l'Automobile, ACEA, CGA (UK) calculations
W Europe – pc market by OEM (FY16) W Europe – pc market by OEM (Jan-Jun’17)
(*) VW group incl. Porsche. (**) Fiat group incl. Chrysler and Jeep. Source: Association Auxiliaire
de l'Automobile, ACEA and CGA (UK) calculations
(*) VW group incl. Porsche. (**) Fiat group incl. Chrysler and Jeep. Source: ACEA and CGA (UK)
calculations

Germany – monthly SAAR1
vs. trend (Oct’08-Jun’17) Germany – pc registrations (1998-2019E)
(1) SAAR according to LMC Automotive. Source: KFBA, LMCA and CGA (UK) calculations Source: KFBA, LMC Automotive and CGA (UK) estimates
Germany
-3.5% in June
+3.1% in YTD
YTD SAAR of 3.46m
In June, the German pc market declined 3.5% yoy to 327.7k units, after having increased
12.9% in May, resulting in a 3.1% increase to 1.79m units in 1H17. Headline figures were
affected by two fewer working days yoy in June and two additional ones in May.
Underlying demand declined again in June, to a SAAR of 3.51m, 2.2% down mom/from
a SAAR of 3.59m in May, the strongest month since the subsidy boosted October ’09
(3.65m). YTD SAAR of 3.46m was 3.1% better than FY16’s 3.35m and 4.7% higher
than the 2000-07 LT pre-crisis level of 3.3m.
+2.3% to 3.43m in FY17E
In 1Q17, GDP growth accelerated, to 0.6% qoq, from 0.4% in 4Q16, driven by domestic
and foreign demand and investments. In 2017E-18E, GDP growth is now expected to
barely decelerate, if at all, from FY16’s 1.8%. However, private consumption is expected
to underperform GDP growth: despite a tight labour market (unemployment rate of
3.9%), nominal annual wage increases have remained below 3% since 2011, restraining
growth in disposable income. For the past two years, consumer confidence has thus
remained (only) stable, though at a 10-year high. After a 4.5% increase in FY16, the
German car market is set to grow another 2.3% to 3.43m in FY17E. Replacement
demand from the incentive-driven boom in 2009 (3.81m) is a supporting factor.
Retail and diesel share
down in 1H17
During its solid recovery over the past four years, the pricing improvement has been only
moderate with discounts reportedly above 20% and the quality of the market poor.
Accounting for more than 30% of car sales, pre-registrations are sold by dealers as
‘used’ cars at considerable discounts. With the market back at pre-crisis level and growth
slowing, aggressive marketing to private customers intensified and explains why, in
May’16-March’17, against LT trend, retail sales outperformed. In 2Q17, retail sales
underperformed again, declining 2.5% vs. a flat overall market. YTD retail sales were
up 2.5% at a 34.6% share, compared to 34.8% in 1H16 and 35.0% in FY16. The decline
in diesel sales accelerated sharply in June (-20.1%) to a 38.8% share, resulting in a
9.5% fall to 0.79m or 41.3% in 1H17, after 47.1% in 1H16 and 45.9% in FY16.
Germany – pc market shares (2010,13,15,16) Germany – real GDP and priv. consumption (2007-19E)
(*) VW group incl. Porsche. Source: KFBA and CGA (UK) calculations Source: Oxford Economics, IMF and CGA (UK) estimates

France – monthly SAAR1
vs. trend (Oct’08-Jun’17) France – pc registrations (1998-2019E)
(1) SAAR according to calculations by LMC Automotive. Source: CCFA, LMC Automotive and
Source: CCFA, LMC Automotive and CGA (UK) estimates
France
+1.6% in June
+3.0% in YTD
YTD SAAR of 2.10m
In June, French car registrations increased 1.6% to 227.4k units, after 8.9% in May,
resulting in a 3.0% increase to 1.14m in 1H17. Adjusted for the number of working days,
the market was up 6.4% in June, 8.9% in May and 3.8% in 1H17. In June, underlying
demand weakened again to a SAAR of 2.08m, 7.0% down mom/from May’s SAAR of
2.24m, the strongest month since March’11 (2.56m). YTD SAAR of 2.10m was up 4.4%
on FY16’s 2.02m and 0.9% on the 2000-07 LT pre-crisis level of 2.09m.
Economy
underperforming,…
…but set to improve
France’s macro-economic credentials have remained mixed and weaker than the
Eurozone average: GDP growth decelerated again from 0.5% qoq in 4Q16 to 0.4% in
1Q17. However, in view of better macro-economic credentials in the Eurozone and
hopes for wide-ranging economic reforms in France, GDP growth in 2017E-18E is
expected to accelerate markedly from FY16’s 1.2%. Private consumption should remain
a key economic driver as consumer confidence has steadily improved since early 2013
to pre-crisis levels, helped by low inflation and an improving labour market.
Parliamentary majority…
…has greatly increased
Macron’s scope for
manoevre…
…though perilous state
of public finances
France’s economic performance from 2H17 onwards will greatly depend on the progress
pro-business president Macron and his government will be able to make in tackling
France’s many structural problems; at top of the list are reform and deregulation of the
rigid, two-tier labour market and tax cuts. Indeed, expectations are high in view of the
large parliamentary majority of Macron’s party, which gives the administration
considerable scope for manoeuvre. However, the perilous state of public finances, with
the budget deficit widening in January-May and heading towards an estimated 3.2% in
FY17, forces the new government to introduce immediate austerity measures (worth
some EUR 9bn until end of 2018).
+3.5% to 2.09m in FY17E
With a medium-term outlook for the French pc market of 2.1-2.2m units, we expect
a 3.5% increase to 2.09m in FY17E, after 5.1% in FY16.
France – pc market shares (2010,13,15,16) France – real GDP and priv. consumption (2007-19E)
(*) VW group incl. Porsche. Source: CCFA and CGA (UK) calculations Source: Oxford Economics, IMF and CGA (UK) estimates

Italy – monthly SAAR1
vs. trend (Oct’08-Jun’17) Italy – pc registrations (1998-2019E)
(1) SAAR according to calculations by LMC Automotive. Source: ANFIA, UNRAE, LMC Automotive
and CGA (UK) calculations
Source: ANFIA, UNRAE, LMC Automotive and CGA (UK) estimates
Italy
+12.9% in June
+8.9% in YTD
YTD SAAR of 1.99m
In June, the Italian pc market increased 12.9% yoy to 187.6k units, after 8.2% in May,
resulting in an 8.9% increase to 1.14m in 1H17. However, in June, the market continued
to be driven by fleet sales (+33%) and sales to rental companies (+43%), both categories
receiving tax incentives. Underlying demand was stable in June, at a SAAR of 1.99m,
up 10.1% from April’s SAAR of 1.81m and remained 6.2% below March’s SAAR of
2.12m, the strongest month since Dec’10 (2.15m). YTD SAAR of 1.99m was 9.1% higher
than FY16’s 1.82m, but remained 14.8% below the 2000-07 LT pre-crisis level of 2.34m.
Economic recovery
remains anemic
Banking sector danger
to eonomy
Italy’s recovery from a three-year, triple-dip recession has struggled to gain momentum
and GDP growth remained anaemic. However, GDP growth actually accelerated from
0.3% qoq in 4Q16, to 0.4% in 1Q17, thanks to inventory building and domestic demand.
In view of a multitude of structural problems, economic growth should barely be able to
exceed 1% in 2017E-18E. Private consumption, the main driver of Italy’s recovery so far,
is set to decelerate from 1.3% in FY16, to some 1% in 2017E-18E, as employment
growth eases and energy prices and inflation pick up.
The political
stabilisation process
has continued
Since Matteo Renzi’s resignation as PM (December’16), national politics have remained
relatively calm under a care-taker government with former foreign minister Paolo
Gentiloni at the helm. However, the government is facing challenges from the perilous
state of public finances, the continuing banking crisis and the refugee crisis. The anti-
establishment ‘Cinque Stelle’ movement has so far managed to veto reform of the
electoral system that would give the government the prerogative to call a snap election
before February 2018.
+10.0% to 2.01m in
FY17E
In view of the economic recovery, modest as it may be, a large car parc and considerable
pent-up demand, the Italian car market is set to continue to recover strongly. We expect
that the market will grow 10.0% to 2.01m units in FY17E, after 15.8% in FY16.
Italy – pc market shares (2010,13,15,16) Italy – real GDP and priv. consumption (2007-19E)
(*)VW group incl. Porsche. Source: Anfia and CGA (UK) calculations Source: Oxford Economics, IMF and CGA (UK) estimates

Spain – monthly SAAR1
vs. trend (Oct’08-Jun’17) Spain – pc registrations (1998-2019E)
(1) SAAR according to calculations by LMC Automotive. Source: ANFAC, LMC Automotive and
Source: ANFAC, LMC Automotive and CGA (UK) estimates
Spain
+6.5% in June
+7.1% in YTD
YTD SAAR of 1.20m
In June, Spanish car registrations grew 6.5% to 131.8k, after 11.2% in May, resulting in
a 7.1% increase to 0.67m in 1H17. However, the ‘quality’ or ‘mix’ of the market remains
precarious in June as sales to rental companies and fleet sales (+23%) remained the
driving forces, while retail sales were up just 3.6%. In June, the SAAR weakened again,
to 1.22m, down 3.6% mom/from May’s 1.26m and remained just 4.4% below
September’s strong 1.27m. YTD SAAR of 1.20m was up 4.4% from FY16’s 1.15m and
remained 18.9% below the 2000-07 level of 1.45m.
Government incentive
scheme allowed to
expire after 46ms…
…as the economy has
accelerated
The strong recovery in the Spanish car market with the SAAR more than doubling
between September’12 (0.56m) and September’16 (1.27m), was initially primarily driven
by the PIVE scrappage scheme. First introduced in October ‘12, the Spanish government
topped up the scheme seven times, but let PIVE 8 expire as scheduled. During the 46ms
of stimulus, the economic recovery has gained momentum and has together with
replacement demand become the main driver. Buoyant fleet and rental sales have
prevented a dramatic pay-back in the Spanish market following the expiry of the PIVE
scrappage scheme at the end of July’16. On this basis, the Spanish pc market is set
to grow 6.3% to 1.22m in FY17E, after 10.9% to 1.15m in FY16.
+6.3% to 1.22m in FY17E
Spain has become one of the fasted growing economies in the Eurozone, with GDP
growing at 3.2% in FY15 and FY16. The recovery has been driven by domestic demand
and more recently, also by net exports. The economic outlook remains positive, GDP
and private consumption are expected to decelerate only moderately and remain above
Eurozone average in 2017E-18E. In 1Q17, GDP growth even accelerated to 0.8% qoq,
from 0.7% in 4Q16 thanks to fixed investment, government spending and exports.
Consumer confidence has stabilised at above pre-crisis levels. However, unemployment,
though having eased considerably to a 7-year low in 3Q16-1Q17, at just below 19% has
remained the second highest in the EU and should remain a drag for years to come.
Spain – pc market by OEM (2010,13,15,16) Spain – real GDP and priv. consumption (2007-2019E)
(*) VW group incl. Porsche. Source: ANFAC and CGA (UK) calculations Source: Oxford Economics, IMF and CGA (UK) estimates

UK – monthly SAAR1
vs. trend (Oct’08-Jun’17) UK – pc market by OEM (2010,13,15,16)
(1) SAAR according to calculations by LMC Automotive. Source: SMMT, LMC Automotive and
(*) VW group incl. Porsche. Source: SMMT and CGA (UK) calculations
UK – Consumer confidence (Jan’08-Jun’17) UK – Retail sales (Jan’08-May’17)
Source: GfK NOP (UK) through Trading Economics Source: CBI through Trading Economics
UK update
-4.8% in June
-1.3% in 1H17
In June, UK car registrations declined -4.8% yoy to 243.4k units, after -8.5% in May and
-19.8% in April, resulting in a -10.3% decline to 0.58m in 2Q17. This followed a 6.3%
increase to 0.82m in 1Q17 and resulted in a 1.3% dip to 1.40m in 1H17.
Increase in road tax for
new cars purchased
after 1st April…
…has greatly distorted
sales over the past few
months
While the vote for Brexit on 23rd June 2016 seems to have had limited impact on the UK
car market so far, the change and increase in road taxation for new cars purchased after
1st April has greatly distorted sales over the past few months. From 1st April, under the
new system all new cars, except those with zero emissions (i.e. BEVs and hydrogen
cars), are subject to a new vehicle excise duty (VED), an annual flat road tax. As
expected, sales of new and pre-registered cars spiked in March and 1Q17 to record
levels as buyers brought forward their car purchases; this was followed by the inevitable
pay-back in 2Q17.
YTD SAAR of 2.56m
In June, the SAAR continued to recover from a 21.1% mom drop in April; June’s SAAR
of 2.47m was 5.4% up mom/from May’s SAAR of 2.35m and 10.7% from April’s 2.23m.
and thus remained 17.2% below December 2015’s all-time record SAAR of 2.99m. 2Q17
SAAR of 2.35m was 15.4% below 1Q17’s 2.78m. As a result, YTD SAAR of 2.56m was
4.7% below FY16’s 2.69m and 4.8% above pre-crisis LT level of 2.45m.
Short-term economic outlook
The economy remained
resilient in 2H16….
Following the EU referendum on 23rd June, the UK economy remained more resilient
than feared and failed to decelerate in 2H16, from 0.6% in 2Q16 thanks to buoyant
private consumption that was driven by a sharp increase in consumer borrowing.
…and decelerated since
1Q17
Indicators point to an economic slowdown; this is particularly true for the consumer
sector. GDP growth decelerated sharply in 1Q17, to 0.2% qoq, from 0.7% in 4Q16,
due to a weakness in consumer-facing service-sector companies. Recent economic
indicators have been disappointingly weak, putting in doubt expectations of a moderate
acceleration in 2Q17 GDP growth.

UK – Busines confidence (2Q14-2Q17) UK – Manufacturing PMI (Jan’08-Jun’17)
Source: CBI through Trading Economics Source: Markit/CIPS through Trading Economics
GBP trade-weighted index (since 1/1/2016) GBP/EUR (since 1/1/2016)
Source: Bank of England Source: Bank of England
GBP/USD (since 1/1/2016) UK gilt - 10-year yield (%) (since 1/1/2016)
Source: Bank of England Source: Bank of England
Sterling now trading
12% below pre-
referndum level
After a brief two-months recovery period, sterling has weakened again since mid-May.
Sterling’s current trading position vs. pre-referendum level is down 12% on a trade-
weighted basis and 13% against the euro and the dollar. The political instability should
increase sterling volatility and put further pressure on consumer confidence.
A weaker sterling set to
bite UK economy from
2017 onwards
A weaker sterling together with firming energy prices is expected to continue to fuel
consumer price inflation and squeeze disposable income and thus hamper private
consumption. CPI is expected to continue to rise over the next 12 months, to average
more than 3% in 2017, exceeding the BoE target of 2%. Indeed, the inflation rate rose
from less than 0.5% in 1H16 and 0.8% in 2H16, to 2.9% in May.
1.7% in FY17E
1.3% in 2018E
Market consensus forecast is that UK GDP growth will decelerate from a (revised) 1.8%
in FY16 to 1.7% in FY17E and 1.3% in 2018E and that private consumption will
decelerate even more drastically, from 2.8% in FY16 to +1.8% in FY17E and 1.0% in
2018E.

UK – real GDP and priv. consumption (2007-19E) UK – pc registrations (1998-2019E)
Source: Oxford Economics, IMF and CGA (UK) estimates Source: SMMT, LMC Automotive and CGA (UK) estimates
Short-term outlook car demand
Car market has
decelearted since
2014…
Even before the EU referendum, the UK car market had been approaching the end of its
longest growth period on record. It had been driven by pent-up demand, easy credit,
aggressive marketing and a continuing economic recovery, with GDP up 2.9% in 2014
and 2.2% in FY15. Falling petrol prices, zero inflation and accelerating earnings growth
had turbo-charged consumer confidence to record levels and private consumption
accelerated from 2.5% in FY14 to 2.9% in FY15.
...and is expected to
have peaked in FY16
The slowdown in the UK market was heralded throughout 2015 by the fact that
fleet/business sales have taken over from retail as market driver; a trend that intensified
during 2016. In 1H17, retail sales declined 4.8% to 0.65m or 44.1%, down from 44.8%
in FY16 and 45.7% in 1H17. After having increased 3.6% to a 47.1%share in 1Q17, retail
sales declined 16.3% to a 42.6% share in 2Q17.
Retail and diesel down
sharply
The decline in the diesel share continued. Diesel sales declined 1.0% to a 43.9% share
in 1Q17 and declined another 20.1% to 43.5% in 2Q17, resulting in a 9.9% decline to
43.8% in 1H17. This is down from 47.7% in FY16, 48.5% in FY15 and a peak of 5 0.1%
in 2014.
Weaker pound set to
trigger hike in sticker
prices
Going forward, in addition to private consumption decelerating sharply, the UK car
market is set to be affected by a weaker and more volatile pound and the ensuing hike
in car prices. Indeed, the UK car market is uniquely vulnerable to a weaker sterling as
almost 90% of LVs/cars sold in the UK are imported. Even locally produced vehicles
have a comparatively low domestic content.
-5.5% to 2.54m in FY17E We expect that the UK car market will start to decline, by -5.5% to 2.54m in FY17E,
after five years of growth. The change of road taxes for new cars is expected to
continue to hamper car sales in the short term. In the medium term, challenges include
Brexit and possibly tighter rules for car financing such as PCP (Personal Contract
Purchasing). The FCA (Financial Conduct Authority) stated its intension to launch a
review into finance packages offered to car buyers, due to concerns that there might be
‘irresponsible lending in the motor finance industry.
This document has been prepared by Creative Global Advisers (UK) LLP (‘CGA (UK)’) solely for the use of its clients and for purely informational purposes. It does not constitute or
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