UK new car sales slump ahead of Brexit ‘existential threat’

British new car sales in 2018 fell at their fastest rate since the global financial crisis a decade ago, hit by the collapse in demand for diesel, as the industry body warned of the "existential threat" to the sector posed by Brexit.

The industry said Britain’s departure from the European Union, due at the end of March, risked the future of the sector, which employs more than 850,000 people and has been one of Britain’s few manufacturing success stories since the 1980s.

Investment looks very likely to have fallen in 2018, the Society of Motor Manufacturers and Traders said, and sales this year are forecast to drop again as it warned a no-deal Brexit would hit jobs.

"You're not going to see immediate closure of plants but what you could see is a reduction in production volumes and certainly, these are often international companies who have alternatives," said society chief executive Mike Hawes.

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“It’s still hard to see any upside to Brexit,” he said. “Everyone recognises that Brexit is an existential threat to the UK automotive industry and we hope a practical solution will prevail,” he said, calling for legislators to back prime minister Theresa May’s deal to guarantee a transition period.

Registrations dropped 6.8 per cent last year to 2.37 million vehicles, the largest fall since sales nosedived 11.3 per cent in 2008, according to data from the industry body.

Demand for diesel

A nearly 30 per cent drop in demand for diesel was the most significant factor in the decline. Diesel has been pummelled since the Volkswagen emissions cheating scandal of 2015, prompting a crackdown and higher levies.

Britain, the world’s fifth-largest economy, is due to leave the globe’s biggest trading bloc in just over 80 days with Mrs May’s agreement looking set to be voted down, leading to a possible no-deal Brexit and the imposition of tariffs and customs checks.

After record highs in 2015 and 2016, sales fell in 2017 and some analysts see car demand as a leading indicator which could be a harbinger for future economic performance.

Britain’s economy slowed to a crawl at the end of 2018, the housing market is stalling and lending to consumers growing at its slowest pace in nearly four years, according to data released on Friday.

Diesel, which accounted for 48 per cent of sales in 2016, fell to 42 per cent in 2017 and just 32 per cent in 2018, mirroring a trend seen in many European markets.

The rise in petrol sales and drop in diesel means the average CO2 emissions of new cars sold in Britain in 2018 rose just under 3 per cent, posing a headache for carmakers who need to reduce levels to meet stricter regulations.

New rules which came into force in September also impacted sales by disrupting the supply of some models, the society said.

Demand this year could also be distorted if Britons expect tariffs to be introduced after Brexit, perhaps pushing up registrations in the first three months of 2019.

“The fear of them might encourage some people to purchase in the first quarter,” said Mr Hawes. “The flip side of that is: ‘Well I don’t know what’s going to happen to the economy if you have a no-deal so I’ll wait and see.’” – Reuters