Time for a quick recap

UK car sales have fallen at the fastest rate since the world was plunging into the great recession a decade ago.

New data from the Society of Motor Manufacturers and Traders show that car registrations slid by 6.8% last year, the second annual decline in a row.

Sales of vans also saw a smaller decline, fuelling worries over the UK economy.

Analysts have blamed three factors:

1. Brexit uncertainty. Weak consumer confidence has left individuals and businesses reluctant to invest
   
2. The 2015 diesel emissions scandal. This has deterred consumers from buying new models and hurt the second-hand value of old diesels.
   
3. Problems implementing new, tougher pollution tests. Manufacturers were forced to halt some production while they got their models approved under the Worldwide Harmonised Light Vehicle Test Procedure.

Diesel sales took a huge hit, down almost 30%, while alternatively fuelled vehicles grew their market share from 4.6% to 6%.

Here’s our full story:

We also have fresh signs that UK companies are triggering contingency plans,

• Luxury carmaker Aston Martin has committed to flying parts into the UK, to minimise the damage caused by a no-deal Brexit.
  
• Bikemaker Brompton has stockpiled £1m worth of spare parts, to ensure it can keep making cycles.
  

In the retail world:

• Discount chain Aldi has recorded its best weekly sales ever, as customers flocked for its high-end brands for Christmas.
  
• Home furnishings group Dunelm has beaten City forecasts, partly thanks to demand for Unicorn-themed items.
  

Luxury UK carmaker Aston Martin has revealed that it has triggered some of its Brexit contingency plans.

This includes flying some parts into the UK, and moving some of its road-based supply chain away from Dover, to avoid disruption caused by a no-deal Brexit.

The company, based in Gaydon, Warwickshire, is also concerned about the lack of clarity around Brexit, with less than three months until the UK’s departure date.

Reuters has the details:

Chief Executive Andy Palmer said the luxury automaker, which was in October considering plans to fly components and move more in through other ports, had no choice but to authorise such contingencies at a board meeting in December.

“I don’t think we’ve been in a position in the last two years where we’ve been further apart from understanding where we’re going to end up,” Palmer told Reuters.

“We programme a car to align and order all the parts for those cars twelve weeks in advance. You don’t need to do the maths to know that therefore takes us across the Brexit period.”

“We have to prepare for the worst case scenario.”

Palmer also warned that Aston Marton’s Brexit plans have added an “accumulating cost”. That will worry investors, who have already seen its share price fall from £19 when it floated last October to just £12 today. More here.

Back in the markets, the optimism that pushed shares higher on Friday afternoon appears to have faded.

Most European indices are now in the red as traders’ minds turn to lunch:

In London, the UK FTSE 100 down 40-odd points at 6795 - heading back towards the 28-month lows plumbed in late December.

This takes the shine off the rally in Asia overnight, as traders caught up last Friday’s strong US jobs report (and calming words from the head of America’s Federal Reserve chief, Jay Powell).

Sentiment may have been hurt by the unexpected slide in German factory orders (see 8.41am). The drop in UK car sales in 2018 won’t have helped the mood either (although it wasn’t a surprise).

Connor Campbell of SpreadEx says:

The market’s tentative grin turned into a grimace as Monday went on, investors unable to keep down the Asian optimism served up at breakfast.

The FTSE, which already wasn’t in a great mood soon after the bell, fell into a funk as lunchtime approached. With AstraZeneca, Standard Chartered, Reckitt Benckiser, BAT and Centrica in various states of red, and BP and Shell ignoring Brent Crude’s 2.3% bounce, the UK index tumbled more than 40 points, slumping back under 6800 in the process.

Investors are now looking for signs of progress in the US-China trade negotiations, which resumed today.

Sales of UK vans slumped by 8.8% last month, new figures from the Society of Motor Manufacturers and Traders show.

That means van sales shrank by 1.3% during 2018 as a whole - a smaller decline than the 6.8 drop in car sales, but still disappointing for the sector.

SMMT CEO Mike Hawes fears that it shows businesses are too nervous about Brexit to invest in new vehicles.

“This sector is a key indicator of business confidence in the UK, and operators need stability to renew their fleets. December’s performance was worrying, as was the overall drop in fleet purchases.

Business confidence depends on government providing the right conditions, which first and foremost means taking a ‘No Deal’ Brexit off the table. We have a strong and competitive commercial vehicle market in the UK, one that can flourish in the right economic climate.”

Economist Howard Archer of the EY Item Club fears that UK car sales will be weak this year too:

Despite the recent improvement, consumer purchasing power is still relatively limited compared to past norms while confidence is currently fragile with particular caution over making major purchases. Indeed, GfK reported that consumer confidence in December was at the lowest level since July 2013. Meanwhile, with the savings ratio being very low, consumers may at the very least be keen to avoid further dissaving. The August rise in interest rates may have reinforced consumer caution. Furthermore, lenders have cut back on the availability of unsecured consumer credit.

Car manufacturers have been particularly vociferous over the impact that a “no deal” Brexit could have in disrupting their supply chains.

With no clarity on how the UK’s departure from the EU will play out, it’s no wonder that consumers are reluctant to splash out on big-ticket items such as a new car.

Seán Kemple, director of sales at Close Brothers Motor Finance, pins the blame for falling car sales on Brexit (along with the global economic slowdown, and confusion over fuel types following the diesel debacle).

He explains:

The last couple of months has seen £100bn wiped off the value of the world’s biggest listed carmakers last year and car production slumping in the third quarter of 2018.

“Brexit is absolutely having an impact on consumer confidence, and we can see that in these car sales. The priority for now is to hope that the Government’s withdrawal agreement delivers some clarity upon which we can start to move forward. However, we still have confusion in the market place from fuel types to finance options, which will continue to exist once Brexit is out the way.

During this extended period of uncertainty, dealers are best placed to be a source of expertise and reassurance to customers. If they hope to bolster their bottom lines, they must seize this opportunity with both hands as we move into 2019.”

It’s official: UK car sales have fallen by the biggest amount since the days of the financial crisis.

The Society of Motor Manufacturers and Traders has just reported that new registrations slumped by 6.8% last year, as anticipated earlier this morning, to 2,367,147 units.

It’s the second annual decline in a row, as this chart shows:

That includes a 5.5% year-on-year drop in sales in December.

Diesel sales crashed by 29.6% in 2018, as drivers were deterred from buying a new model (or trying to sell their old one) by the aftermath of Volkswagen’s emissions scandal.

The SMMT says the industry suffered “a turbulent year”, with consumer and business confidence falling (thanks, Brexit!), plus model changes, regulatory upheaval and continued anti-diesel policies.

Mike Hawes, SMMT chief executive, says:

“A second year of substantial decline is a major concern, as falling consumer confidence, confusing fiscal and policy messages and shortages due to regulatory changes have combined to create a highly turbulent market.

The industry is facing ever-tougher environmental targets against a backdrop of political and economic uncertainty that is weakening demand so these figures should act as a wake-up call for policy makers. Supportive, not punitive measures are needed to grow sales, because replacing older cars with new technologies, whether diesel, petrol, hybrid or plug-in, is good for the environment, the consumer, the industry and the exchequer.”

More to follow....

The Financial Times agrees that the diesel emissions scandal has a serious impact on Uk car sales last year:

Mike Hawes, chief executive of the SMMT, said the drop was due to a combination of new emissions tests leading to supply bottlenecks, diesel drivers holding on to their cars for longer and low consumer confidence.

“Brexit is an issue,” he said, but he added that it would be “unfair to attribute [the decline] wholly to Brexit.” He said Dieselgate — the scandal that revealed widespread cheating in emissions testing by manufacturers — was probably the most significant factor as it was the only category in which sales dropped.

The Independent has highlighted the dangers posed by Brexit:

The SMMT said that its members had spent some time examining what might happen under a disruptive no-deal Brexit, but many car imports are through specialist centres such as Immingham rather than the traditional cross-channel routes. There seems to be little sign, as yet, of consumers buying cars in advance of possible shortages, but the SMMT said that a first-quarter sales boost in 2019 was possible. It added that its members had not been stockpiling new vehicles.

On the other hand, UK manufacturing operations have very little scope for warehousing new parts and any disruption to the 1,100 trucks a day coming to deliver parts to assembly lines across Britain would mean line stoppages, a rapid escalation in costs and a threat to future production and investment.

Sky News points out:

The SMMT, like other business bodies, is calling for MPs to back Theresa May’s Brexit agreement and avoid a no-deal scenario.

It says that crashing out of the EU without an agreement risked destroying the car manufacturing industry, which employs more than 850,000 people in the UK.

The drop in car sales can be firmly pinned on the 2015 diesel emissions scandal, which exposed how Volkswagen has used ‘cheat software’ to hide how much pollution its cars were pumping out.

This hurt demand for new diesel cars, and slashed the second-hand value of old diesels - making it harder to trade them in for a shiny new model.

The scandal also prompted regulators to introduce a new tougher test, the Worldwide harmonised Light vehicles Test Procedure (or WLTP). It did a better job of simulating real-world driving conditions, making it harder for manufacturers to cheat.

However, this also caused significant delays, as manufacturers have struggled to get their new models tested, and certified as compliant with WLTP.

The head of the SMMT, Mike Hawes, fears that car sales could fall sharply again if the UK crashes out of the EU without a deal.

Hawes says is vital that a hard Brexit is avoided, saying:

“It’s still hard to see any upside to Brexit.

“Everyone recognises that Brexit is an existential threat to the UK automotive industry and we hope a practical solution will prevail.”

Reuters has more details.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A potent cocktail of threats have hit Britain’s car industry in the last year, sending sales sliding at their fastest rate since the financial crisis.

New car sales slumped by almost 7% in 2018, according to new data from the Society of Motor Manufacturers and Traders, to around 2.37 vehicles.

It blames a Brexit-induced slide in consumer confidence, the diesel emissions scandal and a new, more rigorous testing regime which has made it harder for European manufacturers to get models on the road.

This is the biggest drop in car sales since 2008, when car sales slumped by over 11% in the aftermath of the financial crisis. It’s the latest signal that the UK economy has weakened.

The SMMT also predicts that sales will fall 2% in 2019, even on the assumption that Britain leaves the EU in March with a withdrawal agreement.

The trade body has declined to estimate how car sales would perform in a no-deal scenario -- something the SMMT sees as a “catastrophe” for the UK car industry (given its reliance on just-in-time supply chains, and the single market).

The SMMT will release its final figures for 2018 at 9am GMT, so stay tuned.

Also coming up today

After some wild sessions recently, global stock markets are starting the new week in a better mood.

Shares have risen in Asia, after Federal Reserve Chairman Jerome Powell tried to reassure investors - saying the Fed’s interest rate policy is flexible and officials are “listening carefully” to financial markets.

Britain’s FTSE is expected to open a little higher too.

The agenda

• 9am GMT: UK car registration figures for December 2018
  
• 9.30am GMT: Eurozone Sentix investor confidence report for January