Fall in consumer confidence puts brake on new car sales

New car sales fell by around 5.6% last year amid falling business and consumer confidence, according to the motor industry's trade association.

Approximately 2.54 million new cars were registered in 2017 compared with 2.69 million the previous year, the Society of Motor Manufacturers and Traders (SMMT) said.

December saw an even sharper decline of 13.9%.

Sales of new cars in the UK
Sales of new cars in the UK

Demand for diesels fell by 31% last month and 17% over the year.

The figures are preliminary, with final totals confirmed on Friday morning.

SMMT chief executive Mike Hawes predicted that the market's decline will continue in 2018, with registrations down 5-7%.

He described 2017 as a "very, very volatile year" with the fall in new car sales caused by "a drop in both business and consumer confidence".

Mr Hawes also revealed that uncertainty over transitional arrangements following the UK's withdrawal from the European Union in March 2019 has caused some manufacturers to delay investment decisions.

If there is no clarity by the end of March they will have to start implementing "contingency plans" which could harm funding for UK operations, he added.

Every day, 1,100 trucks cross into the UK from the continent to deliver some £35m worth of components. Every day, these components help build 6,600 cars & 9,800 engines - the bulk of which are then shipped back to EU customers & assembly plants https://t.co/42D6WWdR0dpic.twitter.com/1FB8sKYJgA

-- SMMT (@SMMT) December 15, 2017

Asked about the decline in diesel cars, Mr Hawes said there is "underlying confusion" among consumers about whether buying such vehicles is "the right thing to do".

Rather than choosing alternatives, many people are "just sitting on their hands", he said.

In November's Budget, Chancellor Philip Hammond announced a tax hike on new diesel cars from April 1.

All diesels are expected to be subjected to a one-band increase in the first year vehicle excise duty (VED) rate.

This came after the Government unveiled plans to ban the sale of all conventional diesel and petrol cars by 2040.

The SMMT said the amount of CO2 emitted by the average new car bought in 2017 is expected to have risen year-on-year for the first time in 20 years, reaching 121 grams per kilometre.

This is because the market share of diesel cars - which produce less CO2 than petrol cars as they are more fuel efficient - dropped from 48% in 2016 to around 42%.

The increase makes it harder for manufacturers to meet an EU target of 95 grams per kilometre by 2021.

Petrol registrations dropped 1.6% in December but rose 2.8% in 2017 as a whole.

Alternatively fuelled vehicles reached a record market share of around 4.7% last year.

New car sales to private motorists were down 6.5%, fleet down 4.4% and business down 7.7%.

Mr Hawes stressed that 2017 was still around the third best year for new car registrations in the past decade and followed record performances in 2015 and 2016.

"The market is still at historic highs," he said.

Jim Holder, editorial director of What Car? magazine, said turning the sharp decline at the end of 2017 into a loss of just 5-7% in 2018 will be a "real challenge" for the industry.

"That's going to take a massive swing in public perception," he told the Press Association.

"I would say there is a risk of double digit (decline) unless all the good news stories come true, and that includes turning some pretty entrenched views around on the economy and diesel."

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