This year could be make or break for the European automotive industry, with the perfect storm of WLTP and ongoing diesel negativity set to impact anyone from dealers and OEMs to Fleet and Finance. Not to mention Brexit. While we do not have a crystal ball, Autovista has gathered predictions for 2019 from our market experts in each of the EU5 countries.
There will be a slowdown in growth in Spain’s new car market in 2019 due to greater economic uncertainty and the possibility of a new tax system that discriminates against some technologies. This will especially affect the private channel, which accounts for 51% of all new car sales in Spain.
We estimate the leasing/company cars channel, which has grown considerably in recent years, will continue to develop positively and command more than a 30% market share in 2019.
The decline in diesel continued in 2018, and a further adjustment is expected in 2019. Diesel lost 35 percentage points of share in the new car market between 2010 and 2018.
Demand for hybrid vehicles expanded by close to 40% in 2018 and will grow further in 2019. We also expect that electric vehicles (EV) will exceed the threshold of 1% market share this year. In the next two years, there will be a large number of electric vehicles coming to the market, supporting high demand growth. However, the scope for EVs is still largely limited to the big cities and so significant infrastructure improvements are required.
The implementation of a WLTP-based tax regime in Spain is delayed until 31 December 2020. However, the new standard has already affected the tax liabilities on new cars as they are calculated using CO2 emissions figures. Manufacturers have already reoriented their offer of engines and equipment.
The used car market has experienced several years of growth and expanded again in 2018. The market seems to have already ‘digested’ the pre-registrations activity that occurred during the summer months - in November 2018 for example there were 30% more transactions of vehicles aged 0-6 months than in November 2017.
Given the current economic uncertainty in Spain and the healthy supply of new cars, it is expected that residual values will remain stable and possibly even show a slight downward trend in 2019. However, discounted vehicle financing offered to dealers by banks is negatively affecting RVs as dealers are passing the discount on by lowering transaction prices.
The drop in diesel RVs became more visible in Spain throughout 2018. The RVs of diesel cars lost between 2 and 5 percentage points throughout the year, depending on the segment and 2019 has begun with slight further downward adjustments. If negative media coverage of diesel resumes and/or if the Government decides to implement higher taxes, residual values will naturally be negatively affected.
Diesel residual values will continue to decline in 2019, especially in segments such as C and D, which have high fleet penetration. This is despite fleets still enjoying financial advantages on diesel, as the VAT deduction is greater than for petrol. The equivalent level of deduction for petrol cars in France is not expected until 2021.
Values of B segment diesels will be less impacted because a switch to petrol has been occurring for several years. Key new model launches in this segment such as the Peugeot 208 and Renault Clio will also increase average diesel RVs.
Petrol RVs will continue to increase, albeit at a slower rate, as fiscal actions are increasingly favouring petrol over diesel. French people are driving less too, further eroding the benefits of diesel.
Plug-in hybrid RVs will continue to increase as there is limited new model activity and premium brands dominate.
Electric RVs will only rise slowly in 2019 as Government actions to support EVs are not yet sufficiently attractive for potential buyers.
WLTP figures will only be introduced to calculate tax liabilities from 2020 in France. SUVs will, therefore, continue to drive value growth in the French market in 2019.
The high number of tactical registrations over the summer of 2018 due to the implementation of WLTP will impact 12-month RVs for some brands more than expected and will be especially felt in the first half of 2019.
The ZDK (German Federation for Motor Trades and Repairs) expects a similar volume of new car registrations in 2019 as in 2018 (about 3.4 million).
Ongoing discussions about diesel bans means buyers, especially user-choosers with higher leasing instalments as well as progressive self-employed and business owners, will increasingly consider electrified vehicles when choosing a new car. The change in taxation on the private use of a hybrid or electric company car will also support demand.
The used car market is expected to decline slightly, as it did in 2018 (down by 1.5% to 7.19 million changes of ownership).
Diesel RVs will continue to decline slightly but will stabilise over the course of the year. A stronger decline is expected for three-year-old cars and a less severe decline for younger used cars.
Petrol RVs will not continue to rise but will remain stable due to the weakening used car demand and less oversupply. The diesel crisis drove the registration volume of petrol cars to all-time highs and in turn boosted the volumes of very young and affordable used petrol cars. The demand and supply situation has therefore been advantageous but seems to have peaked, impacting petrol RVs.
RVs for alternative fuel vehicles - especially hybrids - will grow slightly as the supply and demand situation is still advantageous. This is particularly the case for younger used cars that feature more modern technology.
Alternative fuel vehicles will continue to grow volume-wise, with hybrids at a much stronger rate than EVs (EVs will get a more significant push in 2020).
OEM and dealership registrations of new B and C segment cars will grow and apply further pressure on RVs as supply increases. We expect that the daily remarketing business of dealerships will therefore be dominated by smaller vehicles with lower diesel penetration.
Given the recently confirmed tax changes in effect from 1 March onwards, there will be high volume registrations of new cars with more than 160 g CO2/km in the first two months of 2019.
The boom in new cars which will then go on sale with 0km will create oversupply in the used car market, which has already been impacted by the enormous stock of 0km cars available (there were 178,000 cars at the end of December, equating to almost 10% of the new car registrations volume of 1.9 million units in 2018).
As a consequence, we expect an overall weakening of residual values as these 0km cars will be priced low to be sold on quickly.
Diesel RVs will particularly deteriorate further as almost 70% of the 0km stock is diesel. Demand for new diesels fell by 12% in 2018 with 140,000 fewer cars registered than in 2017, and its share even fell below 50% in the final four months of 2018. Demand for used diesels is dropping similarly – or even more so - because a few cities have introduced bans on pre-Euro 5 diesel cars.
The only vehicles with strengthening RVs in 2019 will be the hybrids – across all segments and body types – and small/medium crossovers.
The only certainty in the UK as far as Brexit is concerned is uncertainty. Nevertheless, Autovista Group has developed the following predictions for 2019:
We estimate that up to 100,000 new car registrations were lost between September and December 2018 due to WLTP and a downturn in demand. Given this, some volume was added to our forecast for 2019. But this did not compensate for the reduction to the base case, downside and upside forecasts because of weakening demand due to rising inflation and falling consumer confidence given the uncertainty surrounding Brexit.
Autovista Group’s base case forecast for the new car market in 2019 calls for a contraction in demand, albeit of only 0.6%. However, even this broadly assumes that the UK’s departure from the European Union will maintain free trade in a transitional phase, that interest rates and inflation will not rise and that pound sterling will not devalue further. In an upside scenario, which assumes ongoing free trade, stable inflation and interest rates and a strengthening pound, the new car market could even expand by up to 4%. On the downside, assuming the UK leaves the EU with ‘no deal’ and that WTO trading rules come into effect, consumer confidence and the economy weaken and interest rates and inflation rise, new car registrations could fall by up to 10%.
Demand for used cars was far more resilient than for new cars in 2018. In 2019, the performance of the used car market and residual values will be dictated by the new car market as consumers may opt for a used car more than a new car given the current climate.
Our current residual value outlook calls for stability in residual values in the 12 month/20,000km scenario in 2019. In the 36 month/60,000km scenario, we forecast that values will fall by 1% in 2019. These assumptions will naturally change if the trend of consumers opting more for used cars than new materialises.