As predicted, March was a pretty poor showing for the motor industry. Headline figures of a 16% fall in sales masked a massive 40% drop in diesel sales. Looking at the headlines in Motor Trader this week, there are certainly mixed messages about what is happening in the marketplace. For instance used-car finance in February was up 15%, though in the first quarter used-car sales are down 5%. In their comment section, concern has been raised once again about the high level of PCP dependence in the industry, a dependence which is spreading across to used cars as well as new.
The concern is not just that we are building up a “hidden” problem, kicking down the road the problem of residuals until the market becomes unsupportable by manufacturers and prices start to drop. The issue is also that 48 month PCPs are tying customers in to longer contracts, from which they cannot extricate themselves and which lengthen the buying cycle. After all, the original idea was that PCPs would improve buying cycles, with customers signing up every 18 months to 2 years to a new vehicle.
The trouble is, if you rely on one particular type of sale, such as PCP, when you hit a perfect storm of falling consumer confidence, falling used-car prices and lengthening buying cycles the market can collapse. And when it collapses each of those problems merely are accentuated and feed on themselves.
None of which is bothering Mercedes-Benz at the moment, as they have just set a quarterly record for sales. Much of this can be attributed to a 17.2% increase in their sales in China, which let’s face it is a massive market. They averaged nearly 200,000 vehicles for each of the first three months of this year and are now well ahead of their rivals BMW as the world’s bestselling premium brand. And despite a small slowdown in North America, they would also have been pleased with their 2% rise across Europe, and particularly in Germany where they were up 5.2%. 10 years ago they would never have credited it, but their most popular models are now SUVs, ironic for a manufacturer that made its name selling some of the best limousines around.
Have a great weekend, enjoy the Masters (or MasterChef if you’re not partial to golf).