Less is More: As Predicted, City Cars Thrive in the UK’s Resurgent Car Market

The UK new car market bucked the trend of falling car sales in Western Europe in 2013, recording growth of 10.8%, compared to a 2.1% decline in the region. However, this pales into insignificance compared to the doubling of sales of City cars in the UK over a period of just two years, tying in exactly with numerous trends that Euromonitor has previously identified as resulting in increased demand for smaller cars in the UK.

Although the Pace of Recovery will Slow, the Outlook for the UK Car Market Remains Positive

Fuelled by a combination of economic recovery, low interest rates, PPI payouts, rising consumer confidence and attractive finance deals (especially in the form of PCP), this comes as little surprise. Nevertheless, the fact remains that new car sales in 2013 were still 5.8% lower in 2013 than in pre-crisis 2007 and 12.2% lower than in the record sales year of 2003. The outlook for demand is broadly positive (although market growth will be far more subdued in 2014, sales are likely to fall in 2015 and demand is not expected to return to the peak level of 2003 before 2020). Underpinning this expected long-term recovery of new car sales is a return to consistent GDP growth over 2% from 2016, which is typically the threshold which supports increasing car sales in the UK. Furthermore, there is also a return to growth in the number of households with annual disposable income over US$25,000, the development of which new car sales have tracked historically.

New Registrations of Passenger Cars and Households with Annual Disposable Income Over US$25,000 in the United Kingdom, 1990-2020

Source: Euromonitor International

Demand for City Cars is Positively Booming

In a press release on 6 March 2014, the SMMT (Society of Motor Manufacturers and Traders) reported that, on a rolling 12-month basis, “the new car market grew 17.4% between February 2012 (1.94 million registrations) and February 2014 (2.28 million). While the Supermini segment recorded solid growth over the period, volumes in the Mini segment almost doubled, helped by the introduction of new models. The small car market has been supported by motorists looking to reduce running costs, as well as increased diversification of products and advances in levels of comfort and safety.”

The doubling of sales in the Mini (aka City) car segment over just two years is of particular note, not only because of the sheer explosion in demand but because it accounted for a record share of the market in 2013. Aside from new model introductions and the benefits of reduced running costs, this surge in demand tallies with numerous trends identified as positives for small car demand in the UK. These include urbanisation, an ageing population (although immigration is boosting the younger population), increasing female employment and single-person households, shorter distances travelled by car, a more cautious attitude towards debt and booming online retailing. In this context, I still maintain my previous prediction that city and small car segments combined will account for as much as 45% of new car sales in the UK by 2020 – up from 39.5% in 2013.

Coming back to online retailing, there is even a new initiative for underground stations in London to act as collection points for goods ordered online. This is yet another retailing solution that means smaller households no longer require the interior and boot space offered by larger cars. With this in mind, more manufacturers should surely offer buyers of smaller cars access to a larger car when required, an initiative pioneered by BMW for consumers that buy an i3.