September update: the daily grind

I always find plate-change month interesting. One reason is that I like to spot my first car wearing the new registration. This September, I didn’t see my first 76 plate until the middle of the month. Hardly scientific, I know. But it may be a small sign that September has been harder work than the headline numbers will suggest.

When the Society of Motor Manufacturers and Traders (SMMT) publishes its figures, I fully expect a significant year-on-year rise in new-car registrations. But I suspect much of that growth will come from the Chinese new entrants. Many traditional manufacturers continue to lose ground. There are two reasons why.

Firstly, Chinese brands are getting serious about fleet. The word on the street is that some major Chinese entrants are becoming extremely competitive in the fleet market. I’m hearing, from sources I trust, of support levels reaching around 35% of retail value in some cases.

As a short-term strategy, it makes complete sense. Want to establish a brand quickly, get cars on the road, and buy market share? Fleet is an obvious route. But there’s a sting in the tail. Heavy discounting today risks suppressing residual values tomorrow. That’s particularly true for Chinese brands, whose three-year residual assumptions currently look relatively generous.

The volume may look attractive. The economics further down the road could be rather less comfortable.

Secondly, traditional manufacturers still have numbers to hit. At the other end of the market, established manufacturers can’t simply sit back and watch share disappear. If registrations are behind target as the quarter closes, pre-registration is one of the quickest ways to lift the number. That may also explain why I’ve seen so few new-plate cars out on the road.

A late surge in registrations can make the monthly figures look healthy. But those cars don’t disappear. They sit on dealer balance sheets until someone sells them, and that usually means discounting. The danger is that September’s registration target becomes October, November, and December’s margin problem.

September may well finish up year on year. No doubt that will produce a few positive headlines about consumer confidence and the strength of the new-car market. But, as ever, the devil will be in the detail.

For traditional manufacturers and their dealer networks, two icebergs are appearing in front of the Good Ship Retail. The first is falling market share as Chinese entrants grow. The second is a growing stock of pre-registered vehicles that dealers will eventually have to trade out. Both put pressure on margin. Both put pressure on residual values. And both will need careful navigation over the coming year.

September’s headline figures may look good. The real question is what had to happen to create them.

When margins tighten, every marketing pound has to work harder. Mediahawk’s Marketing Attribution and Call Tracking connect every call, click, and enquiry to the campaign that drove it. You can see which activity is shifting stock profitably – and which is simply adding cost.

Good luck to all as we head into the final quarter.

Author: Harry Bott