European Economic Recovery

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2 European Economic Recovery - Implications for Automotive Distribution Professor Peter N C Cooke Emeritus Professor of Automotive Management The University of Buckingham peter.cooke@buckingham.ac.uk 2

3 The University of Buckingham 3

4 Objectives Review the EU economy and anticipated recovery Examine historic and anticipated changes in the automotive sector Present the UK economic and automotive recovery as a case study Seek to highlight possible messages for Latvian automotive distribution 4

5 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 5

6 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 6

7 Eurozone Annual GDP Growth % Source; Eurostat 7

8 Millions of units European New Car Registrations; Source; ACEA 8

9 Millions of units New Car Registrations Major Markets; est France Germany Italy Spain United Kingdom Source; ACEA 9

10 EU 5 Year Car Parc; 2009/2013 vs. 2004/2008 Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom -3,500,000-3,000,000-2,500,000-2,000,000-1,500,000-1,000, , ,000 Source; ACEA 10

11 Implications of Historic Change Significantly reduced new car registrations Changing market penetration Slow economic recovery How will OEMs handle the situation? The consensus is that the EU new car market is unlikely to return to pre-2008 levels in the short to medium term - if ever... 11

12 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 12

13 GDP % inc/dec previous year UK GDP vs. Previous Year; Source; ONS/OBR 13

14 UK GDP Growth by Quarter Past Recessions ' ' ' Present Quarters Source; ONS 14

15 UK Implications of Economic Change Recent deep recession Shortage of disposable income Need for business to reinvent itself for recovery Need for reduction in state spending Unacceptable level of unemployment 15

16 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 16

17 Millions of cars UK New Car Registrations; New car sales Scrappage deals New car sales forecast Source; SMMT 17

18 Millions of cars UK Used Car Supply Gap Used Car Supply Gap Source; SMMT/Buckingham 18

19 Millions New vs. Used Car Market Volumes; New Used Total Source; BCA Used Car Market Report 19

20 billion New vs. Used Car Market Values; New Used Source; BCA Used Car Market Report 20

21 UK 5 Year Car Parc; 2009/2013 vs. 2004/2008 Alfa Romeo Audi BMW Chevrolet Citroen Fiat Ford Honda Hyundai Jaguar Kia Land Rover Mazda Mercedes MINI Nissan Peugeot Renault SEAT Skoda Suzuki Toyota Vauxhall Volkswagen Volvo -500, , , , , , ,000 Source; SMMT 21

22 Share of new car market UK New Car Registrations Segments; % Source; SMMT Mini Supermini Lower Medium Upper Medium Executive/Luxury Sports 4x4/MPV 22

23 Units Car Finance Parc; ,600,000 1,400,000 1,321,959 1,317,595 1,295,813 1,319,456 1,366,011 1,378,123 1,200,000 1,000, , , , , , , , , , , , ,494 87, , , ,337 32,731 26,134 19,497 26,808 23,939 31, Contract Hire Fleet Management Finance Lease Contract Purchase Personal Contracts Source; BVRLA 23

24 Issues to be Resolved in UK Market Shortage of younger used cars High volumes of ex-oem finance cars expected Change in OEM car parc Reduction in low-cost finance Average age of car parc Risk of increasing interest rates 24

25 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 25

26 Automotive Business Model Aftermarket Car Sales New Service Repair Service Plan Body & Paint Tyres Batteries Exhausts Breakdown Car Rental Warranties Insurance GAP Ins. Scrap 1st owner 2nd owner 3rd owner 4th plus owner New Car Profit Part-exchange profit Finance & Insurance Used Car Profit Part-exchange profit Finance & Insurance Used Car Profit Part-exchange profit Finance & Insurance Private Sale 26

27 Family fleet/second cars Auto Product Support & Profit Opportunities Point of Sale Finance New or Used Car Daily Rental Manufacturer s Finance Carbon footprint reduction 27

28 Implications All areas of the dealership to work together Profit to be sought from a wide range of opportunities The dealer as a one-stop shop Integrated dealer importance of dealer training Importance of dealer staff training 28

29 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 29

30 Latvia New Car Registrations; ,000 32,771 30,000 25,000 25,582 20,000 15,000 16,602 19,831 10,000 5,000 8,713 11,217 5,367 6,365 10,980 10,665 10, Source; ACEA 30

31 Issues for Latvia? Changing new car market New car packages and finance Evolving used car market profit opportunities Shortage of younger used cars Developing service opportunities pricing policy Staff training sales, service, finance, customer care Seeking the one-stop shop? 31

32 Issues for Latvia II Updating the car parc Vehicle finance Creating the total package new and used Business retention not just price 32

33 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 33

34 Some Conclusions and Implications Issues emerging from slow market Rebuilding the market shape Seeking sustainable profitable business Watch changes and implications elsewhere 34

35 European Economy Conclusions UK Economic Background Economic Recovery Issues For Latvia? UK Car Market Industry Implications 35

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