IMI Magazine

IMI Magazine

MID TERM REPORT - Leaders and laggards

Industry’s big fish not only have the worry of more sprats nibbling away in their feeding grounds; the pool’s also shrinking as the UK new car market goes into one of its cyclical downturns.

After several years of a rising sales graph - with the high point reached in 2003 - fall off in demand really began to bite in the first five months of this year with a 6% slide compared with the same period for ’04.

Not the best backdrop to launch a record number of new models. Or to have a record number of brands jostling for attention.

Ford has clung on to the number one spot, but its grip is ever more tenuous. Vauxhall continues to narrow the gap and during the opening five months achieved the biggest market share gain of any supplier, penetration rising from 12.7% to 13.7%.

In contrast, Ford’s market share declined from 15.1% to 14.8%. In  2004 Ford was almost 28,000 units ahead of Vauxhall after five months, but this year the gap was a mere 12,386 vehicles.

Ford has been helped by the debut in January of its new Focus which is firmly entrenched at the top of the best-sellers’ list, comfortably outselling Astra. The company holds the advantage in the mid-range too with Mondeo ahead of Vectra, but Corsa has the advantage over Fiesta.

Aside from this duo, only four marques – Renault, Volkswagen, Peugeot and Honda – have a market share of more than 5%. Renault has held on to third place ahead of Volkswagen, both securing a marginal boost to their market share, even though unit sales of both companies reflected the market’s overall decline.

Aggressive discounting by Citroen appears to have fallen down on all fronts. Not only has it failed to stem a marked fall in unit sales and market share, but it’s also led to complaints from dealers over profitability. Like Peugeot, its PSA stablemate, Citroen says that loss of market performance can be explained largely by the deliberate policy of reducing exposure to some of the less profitable fleet deals and focusing more effort on the private sector. The adverse impact of this has been particularly noticeable due to the current strength of fleet business and relative weakness of the retail market. Citroen, in particular, makes a high proportion of its sales in the retail sector.

Fiat, too, claims that its 51.6% sales decline and halving of market share stems from a decision to withdraw from ‘fast-churning’ business and non-profitable channels such as the daily rental fleets. The company anticipates that sales will revive when the new Punto arrives at the beginning of next year. Despite favourable motoring media reports, the Panda seems to be as rare as hen’s teeth on the nation’s roads and – like its compatriot Alfa Romeo, which has also experienced a sharp fall despite an attractive model line-up – Fiat continues to suffer from a poor reputation on dealer service.

Meanwhile, the Japanese carry on their relentless rise up the ladder. Toyota’s market share has grown from 4.8% to 5.2% to consolidate its position in sixth place, Honda has moved into seventh position with a 4.1% share, while Nissan has advanced from 3.4% to 3.6%. All three benefit not only from a reputation for ‘bullet-proof’ quality and reliability but a series of other factors. Honda’s inspired advertising, for example, has boosted its profile and feel-good factor  among private buyers. The Civic and Jazz models have performed well and the introduction of a diesel version of the Accord has proved popular with company car user choosers.

By contrast, performance among German premium suppliers has been patchy. After a period which saw its market share stuck at around 3.4%, BMW has broken convincingly into higher ground with a rise to 3.8%, in the process selling almost 10,000 more cars than arch rival Mercedes-Benz. Unlike Merc, BMW has held on to its reputation for quality and reliability and has secured higher sales thanks to a vigorous new model programme which, in the case of 1 Series, has seen it enter a new market segment. The 5 Series is selling well, with the Touring version winning new customers, and X3 sales are gaining ground. Further progress is likely as the new 3 Series and its various versions are launched.

 Audi is another example of a marque gaining from new models, rising sharply from a 3% to 3.6% market share, leapfrogging Mercedes-Benz for whom the nightmare continues with a market share drop from 3.2% to 2.9%.

ompounding the pointed star’s fall from grace is the issue of whether the new distribution structure, whereby the company has assumed ownership in key areas, is failing to deliver the kind of service and commitment which long-standing customers have come to expect from dealerships under individual ownership.

Jaguar is also on the slide in the luxury marketplace. A fall of 25.9% in unit sales saw its market share erode from 1.3% to 1%. In Jaguar’s case, it could be a graphic example of a vicious circle, with poor financial performance adding pressure to reduce unit costs at the expense of quality.

Strong market share gains have been secured by Aston Martin and Bentley on the back of new models, while Porsche’s entry into the SUV sector with Cayenne has been a great success. Mini continues to win converts and spectacular gains have been seen at Kia and Saab.

In the case of Kia there was a 31.6% rise in unit sales which resulted in a market share rise from 1% to 1.4%. This was not a one-off phenomenon. Kia has been on a strong growth trend for a few years, rising from around 12,000 in 2002 to 35,000 last year. The company attributes its success to offering a range of modern vehicles at good value, and projects 45,000 sales in the current year.

Saab’s sales advanced by 36.7% and its market share from 0.7% to 1.1%. Prospects have been enhanced greatly by the 9-3 model.

Isuzu has seen the largest sales decline in percentage terms (63.5%) because of the  phasing out of the Trooper model.

Following the collapse of MG Rover, common sense should dictate market consolidation: no fewer than 20 marques have a market share of less than 1% and a further 13 under the 2% marker. But some – Saab and Alfa Romeo, for instance – could have everything to play for among status conscious consumers who decide that BMWs and Audis are becoming ‘too common’. In any analysis, though, when was the last time that the UK’s new car market conformed to reason?