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Nil desperandum

Last year, 2016, might go down as a record-breaker for the retail car business. An all-time high 2.69 million new cars were registered. Used car sales could also be a record. And although the service and repair market might have declined in real terms, franchised workshops will have increased their share at the expense of the independent sector thanks to a growing four-year parc.

Franchised dealers were already experiencing the benefits of rising new car sales a few years ago. The financial accounts for dealer groups reported improvements from 2012, and the performance of many groups in the 2015 financial year was exceptional and we can probably expect 2016 to be similar.

However, it is difficult to be quite as optimistic about 2017. Yes, new car sales started well in January with a 12-year high and 2.9% ahead of January 2016. But is this the effect of the VED changes starting on 1 April this year? Some dealers have reported buyers bringing forward their purchases of new cars, so the VED changes could partly explain the continuing robustness of the new car market. We shall see once the changes come into effect.

But the growth in the new car market started to fall away from the end of 2013, and this will surely affect total new car sales in 2017. There could also be a change in the model mix to less profitable models. High-end sales could well suffer from the VED changes, and demand might increase for more economical cars now fuel prices are rising. Dieselgate could affect demand for diesel cars.

The same factors driving the new car market also drive the used car market with used car sales tending to move in unison with new car sales. Used car sales, though, are less sensitive to market drivers. So while the recession that started in 2008 saw new car sales fall by nearly 20% between 2007 and 2011, used car sales declined by less than 10%.

As noted, the market for servicing, maintenance and repairs (SMR) has started to decline in real terms, but franchised dealers have grabbed a larger share in recent years thanks to four-year parc growth driven by new car sales.

Should 2017 see new car sales fall compared to 2016 - and that seems very likely – the status of the SMR market will change very little. This is because the four-year parc responds relatively slowly to changes in new car sales. When new car sales decline, the four-year parc lags behind. For example, after the (then) record high new car sales of 2.3 million in 1989, registrations dropped dramatically in 1991 to 1.59 million - a 31% fall. In the same period, the four-year car parc declined by 10%.

What with all of this, Brexit, and Trump’s election in the US, 2017 is a very hard year to predict for the retail motor industry. But nil desperandum, used cars and aftersales are, as ever, a good bet.

Written by Trend Tracker director Chris Oakham, this piece first appeared in the subscription monthly Auto Retail Bulletin.

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