automotive insights

Brexit uncertainty and tough markets lead auto news

The focus on emissions and its potential impact from both a manufacturer and retailer perspective are among the key stories from around the world in this edition of Automotive Insights

Tough markets

Jaguar Land Rover (JLR) introduced a two week shutdown at the end of October to help deal with weakening global demand1, especially in China where import duty changes and trade tensions with the US have held back consumer demand2. Meanwhile, parent company Tata Motors revealed its financial performance and with it an 18 month £2.5 billion turnaround plan (“Project Charge”) for JLR, which will drive efficiencies and focus on cash3. JLR’s experience is a fairly similar story across a number of global OEMs, with recent profit warnings from BMW and Daimler both citing the impact of trade tensions on models produced in the US for the Chinese market4.

Brexit uncertainty

Even though a proposal for a deal has been submitted to the EU and UK Parliament there still remains uncertainty and a number of companies such as BA have decided to enact a no Brexit business plan. What we do know is that the uncertainty around Brexit is causing a reduction in UK investment and having an effect on the automotive supply chain. Schaeffler, the component supplier, announced plans to close two UK plants amid “uncertainty surrounding Brexit”, placing more than 550 UK jobs at risk. The process will take up to two years to implement5. There has also been more disappointing news that the Dundee-based Michelin tyre factory will close by mid-2020 after the French firm deemed it “unsuitable” in the current climate, blaming competition from cheaper tyres coming in from Asia. The site, which opened in 1971 and manufactures 16-inch and smaller tyres, employs 845 workers6.

It’s not all bad news, McLaren goes from strength to strength

In more positive news, the Duke and Duchess of Cambridge opened McLaren’s new £50 million carbon fibre chassis factory in Sheffield moving production from Austria in a decision initiated before Brexit. More than 200 jobs will be created when the site reaches full production in 20207.

The move to electric vehicles

Volkswagen Group is treading carefully with its labour unions around the balancing act of preparing its plants for the shift to electric vehicle production (thus securing long-term future jobs) and the expected reduction in workforce required to assemble vehicles with fewer components8. A German court has ruled that two more cities, Cologne and Bonn, must impose bans on older diesel vehicles. Volkswagen Group and Daimler are reportedly prepared to offer hardware retrofits to clean up older diesel vehicles at their own cost, BMW is said to be refusing9.

The desire to reduce vehicle emissions

Closer to home, efforts to reduce vehicle emissions in London's Square Mile are pushing forward with the introduction of a trial close to our Finsbury Square office. As part of a pilot scheme, Moor Lane, near Moorgate Station, will only be open to the least-polluting vehicles by around April 201910.

Interim plc results

The latest round of interim reports from the plcs show the resilience of some of the listed dealer groups in what was a depressed 68 plate-change caused by stock shortages following the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emissions regulations on 1 September.

Cambridge-based Marshall Motor Holdings said its full year 2018 profits are expected to beat the record it set last year, despite the new car supply issues caused by WLTP. The group said its October trading was “better than anticipated” and it now has a more positive outlook for the remainder of the current financial year citing the strength of used car volumes and margins and revenue growth from aftersales11.

Lookers said improved aftersales and used car sales growth helped offset falling new cars sales in its third quarter. Turnover and volumes of new cars reduced by -7% in the nine months through to September, in line with the wider market, owing to the WLTP supply shortages. Total gross profit from new cars fell by -5%, while margins and profit per unit were higher than the year before. Turnover of used cars increased by 10%, while gross profit from used cars increased by 10% during the period with improved margins per unit, the company said. The aftersales business, representing 42% of total gross profit, saw turnover and gross profit increase 5% and 6%, respectively12.

However, Pendragon’s interim statement for the three months ended 30 September showed like for like revenues down -7.2%, forecasting a full year fall of profits of -17% as it singled out the September shortfall caused by WLTP. Used car gross profits rose 13.7%, like for like, with gross margin rising from 5.7% to 6.9%13.

International investor makes UK debut

Meanwhile Dubai-based conglomerate AW Rostamani has made its first acquisition in the UK, taking a majority stake in the Hertfordshire-based Brayleys Motor Group, whose franchises include Honda, Kia, Mazda and Renault/Dacia. Founder and managing director Paul Brayley said he hopes the investment in his family-run business will help it deliver organic growth14.

Europe’s largest dealer group revealed

Europe has a new name at the top of the largest dealer groups by turnover rankings, produced by industry analyst ICDP. Swiss car retailer Emil Frey climbed from fifth place to the top spot with revenues of €11 billion, following last year's purchase of 275 sites from the Volkswagen Group. Penske Automotive (Europe), which trades as Sytner, dropped one place to second with Pendragon third. Other UK groups featured in the rankings were Lookers (4), Inchcape Europe (5), Arnold Clark (6),  Vertu Motors (9), Marshall Motor Holdings (12), Jardine Motors UK (13), Group 1 Automotive UK (18), Listers (24), JCT600 (30), Greenhous (33), John Clark Motor Group (=39), Stoneacre Group (=39), Park’s Motor Group (42) and Swansway (42) 15.

And finally

Grant Thornton has joined forces with Cox Automotive to produce the Insight Report 2018, the first in an annual series identifying the key trends impacting the UK’s automotive retailing sector. The report covers dealer consolidation activity, new and used car market trends, the increasing consumer demand for premium brands and the way mobility options are evolving. Free copies of the report can be downloaded here.

Sources

1 Jaguar Land Rover plans two-week closure as demand falls, BBC News, 8 October 2018 https://www.bbc.co.uk/news/business-45785229

2 Monthly sales impacted by ongoing China market uncertainty, JLR Press Release, 8 October 2018 https://www.jaguarlandrover.com/news/2018/10/monthly-sales-impacted-ongoing-china-market-uncertainty

3 Tata Motors reveals turnaround plan for Jaguar Land Rover after loss, Reuters, 31 October 2018 https://uk.reuters.com/article/uk-tata-motors-results/tata-motors-reveals-turnaround-plan-for-jaguar-land-rover-after-loss-idUKKCN1N51D2

4 BMW, Daimler profit warnings hit shareholder value, Automotive News Europe, 12 November 2018 http://europe.autonews.com/article/20181112/ANE/181109836/bmw-daimler-profit-warnings-hit-shareholder-value

5 Schaeffler factory closure fears: 570 jobs at risk, BBC News, 6 November 2018 https://www.bbc.co.uk/news/uk-wales-46110825

6 Michelin announces its intention to close its Dundee site in the United Kingdom in 2020, Michelin press release, 5 November 2018 https://www.michelin.com/eng/media-room/press-and-news/press-releases/Finance/Michelin-announces-its-intention-to-close-its-Dundee-site-in-the-United-Kingdom-in-2020

7 McLaren Automotive opens $65 million English chassis facility, Reuters, 14 November 2018 https://uk.reuters.com/article/uk-mclaren-chassis/mclaren-automotive-opens-65-million-english-chassis-facility-idUKKCN1NJ1Y8

8 VW Plans to Boost Electric-Car Production in Germany, Bloomberg, 7 November 2018 https://www.bloomberg.com/news/articles/2018-11-07/vw-is-said-to-consider-boosting-german-electric-car-production

9 BMW Rejects Government Pressure to Fund Diesel Hardware Upgrades, Bloomberg, 8 November 2018  https://www.bloomberg.com/news/articles/2018-11-08/germany-pushing-bmw-to-help-finance-diesel-hardware-upgrades

10 London street set to become first zero-emission zone, Autocar, 1 November 2018 https://www.autocar.co.uk/car-news/industry/london-street-set-become-first-zero-emission-zone

11 Marshall now more upbeat about expected 2018 trading result, AM Online, 14 November 2018 https://www.am-online.com/news/dealer-news/2018/11/14/marshall-now-more-upbeat-about-expected-2018-trading-result

12 Lookers aftersales service, used car sales growth offsets stuttering new car sales, StockMarketWire ,7 November 2018, http://www.stockmarketwire.com/article/6197922/Lookers-aftersales-service-used-car-sales-growth-offsets-stuttering-new-car-sales.html

13 Pendragon revenues fall -7.2% in third quarter, Motor Trader, 26 October 2018 https://www.motortrader.com/motor-trader-news/automotive-news/pendragon-issues-warning-profits-26-10-2018

14 Dubai investors buy majority stake in AM100 dealer group Brayleys, AM Online, 2 November 2018 https://www.am-online.com/news/acquisitions-and-deals/2018/11/02/dubai-investors-buy-majority-stake-in-am100-dealer-group-brayleys

15 Swiss dealer group Emil Frey rises to No. 1 on big deal with VW Group, Automotive News Europe, 12 November 2018 http://europe.autonews.com/article/20181112/ANE/181109834/swiss-dealer-group-emil-frey-rises-to-no-1-on-big-deal-with-vw-group