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Editor: Jane Griffiths
ISBN: 1-84168-052-4

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Table of Contents

Executive Summary

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TABLE OF CONTENTS

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EXECUTIVE SUMMARY

The motor industry is an important contributor to the UK economy, with the car (both new and used), commercial vehicle, and motorcycle, moped and scooter sectors having an estimated retail value of £62.5bn in 1999. The sector is also one of the UK’s largest employers, with 942,000 people being employed in motor manufacturing and related industries during 1999. Demand for vehicles in the UK is driven by a number of factors, including the level of personal disposable income (PDI), the number of adults holding a driver’s licence and the changing structure of households.

CARS

By far the largest single component of the market is cars, which accounted for 83.7 percent of new registrations in 1999. By retail value, new car sales (including imports) accounted for 41.4 percent of total market value in 1999, while used car sales represented a further 31.2 percent.

The car sector has shown good growth since 1996, with total new registrations rising by 9.6 percent to around 2.2 million units in 1999. However, unfortunately for domestically-based manufacturers, much of this increase is a direct consequence of the rising tide of imports. An important feature of the UK’s car market is the importance of company and fleet buyers to the sector as a whole. The UK is widely regarded as having the most developed company car market in Europe with sales to business customers accounting for as much as 75 percent of the new car market.

As a consequence of their tremendous purchasing power, company and fleet buyers can demand significant discounts on their purchases. According to a recent inquiry by the Competition Commission into new car prices, deals given by manufacturers to corporate customers are subsidised, to some extent, by charging higher prices to private buyers. However, whether this situation will continue after the Commission’s report is published remains to be seen.

The UK car manufacturing sector is dominated by a handful of companies, with the top ten accounting for 78.4 percent of new car registrations during 1999. Interestingly, however, many of the leading car producers have underperformed the market as a whole, primarily because of the aforementioned rise in imports. The market leader, Ford, for example, experienced a 2.3 percent fall in new registrations of its models between 1996 and 1999.

COMMERCIAL VEHICLES

The next largest sector is commercial vehicles, which consists of light commercial vehicles (LCVs) weighing less than 3.5 tonnes and heavy goods vehicles (HGVs) weighing between 3.5 and 40 tonnes. Overall, the market by new vehicle registrations grew by 12.1 percent between 1996 and 1999. In terms of production, UK manufacturers have suffered declining fortunes over the past few years, with LCV and HGV vehicle production falling by 20.8 percent and 32.9 percent respectively between 1996 and 1999.

As with the car market, the commercial vehicle sector has experienced a steady rise in imports over the past decade, while the industry’s export performance has been damaged by the rising value of sterling. The UK commercial vehicle sector is also highly concentrated, with one or two players dominating their respective sectors. In the small van market, for example, the top three manufacturers — Ford, Vauxhall and PSA Peugeot-Citroën — held a combined market share of 75.2 percent in 1999 in terms of the volume of new registrations.

Another important feature of the market is the number of manufacturers that operate production centres across Europe and, indeed, the world. This has allowed commercial vehicle manufacturers to source different vehicle parts from their various subsidiaries. A recent example of this practice was the development of Ford’s new range of Transit vans, which involved a design team in the US, engine design in the UK and components sourced from Germany.

MOTORCYCLES, MOPEDS AND SCOOTERS

The most dynamic sector of the UK motor industry over the past few years has been motorcycles, mopeds and scooters. In the 4-year period leading up to 1999, the number of new motorcycle, moped and scooter registrations more than doubled to 141,000. The rapid development of the sector has been led by a number of different factors, including rising traffic congestion, the influence of the so-called ‘born-again bikers’ on the high-performance sector, and the influence of new designs on the scooter market.

Japanese manufacturers dominate the UK motorcycle, moped and scooter market, with the ‘big four’ of Honda, Suzuki, Yamaha and Kawasaki controlling an estimated 70.2 percent of the sector in 1999 by number of new registrations. However, their position, particularly in the scooter and moped market, is being threatened by the re-emergence of Italian producers such as Piaggio.

MOTOR COMPONENTS

For the motor components sector, as for the industry in general, consolidation and systems integration are dominant themes. Recent years have witnessed a continuing trend for mergers and acquisitions, with the only brake on such activity being the rising asking prices of those that maintain their independent status.

Another issue affecting this sector is that vehicle manufacturers are currently reducing the number of their component suppliers. This allows the manufacturers to develop closer relationships with certain chosen prime suppliers that are able to provide every level of detail. It also results in the manufacturers requiring more parts from each component supplier.

The UK motor components sector was estimated to be worth £15.48bn in 1999, having risen by 5.6 percent since 1997. Exports were a significant factor in this growth.

DISTRIBUTION

Vehicle distribution in the UK is undergoing a period of unprecedented change. Historically, new vehicle distribution involved a manufacturer selling through a franchised dealer which dealt exclusively with its vehicles. Today, this arrangement has gradually been eroded as dealers, resenting the lack of manufacturer flexibility on price and conditions, find alternative sources of new vehicles. To this end, the proposed lifting of the European Union (EU) Block Exemption in 2002 should allow a greater number of retailers to leave the franchised dealer network.

In terms of the franchised dealerships operated by the major vehicle manufacturers, Ford has by far the largest number, at 755 in 1999, followed by Vauxhall with 524. Overall, the total number of franchised dealerships fell by 15.3 percent between 1995 and 1999. This is because, over the last few years, manufacturers have sought to reduce the number of smaller outlets under control, which are not large enough to reach the required level of sales. Moreover, smaller sites cannot cover the level of after-sales services, such as MOT test centres and parts and repairs, that most of the larger sites can provide.

Although the retail distribution of motor vehicles is highly fragmented, primarily in the used car sector, there are a number of very large dealerships. Four motor dealers, for example, have a turnover in excess of £1bn, with the largest, Lancaster, having a turnover of £1.85bn.

FUTURE PROSPECTS

Future prospects for the motor industry are at best mixed. Although, over the past few years, vehicle manufacturers have experienced steadily growing sales, profitability remains poor. Moreover, market conditions can only deteriorate, given the buoyant economy and high consumer confidence. Recognising their predicament, manufacturers have sought to further consolidate the industry in an effort to cut costs and increase geographic coverage. However, while such deals have certainly created an opportunity to cut costs, it is debatable whether they will create new opportunities for growth.

A more radical approach has been taken by the industry’s two largest players, General Motors and Ford, which have started moving their operations downstream where profits are larger. Ford, for example, has started to consolidate dealerships and recently purchased Kwik-Fit, the fast repair chain, along with its first vehicle recycling plant. Meanwhile, Ford Credit, one of the world’s largest financing businesses, has been strengthened.

Forecasts 2001 to 2004

Overall, the market for new vehicles (excluding buses and coaches) is expected to rise by 8.6 percent in terms of the number of new registrations between 2001 and 2004, to reach 2.9 million units. The strongest growth is predicted to come from the motorcycles, mopeds and scooters sector, at 41.2 percent over the period.

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Last updated by Duncan Nottage 5th October 2000