2024 predictions for the Automotive Industry

ZEV Mandate

After years of debate the ZEV Mandate is now part of UK Law and will place new pressures on Manufacturers, Retailers, Leasing Companies and Remarketers. We predict the following outcomes.

1. Dealer incentives to meet EV quotas. A combination of “sticks” and “carrots” depending on the OEM and the size of gap they need to close.
2. An increased supply of vehicles allocated to leasing channels and Motability. This should be good news for customers of those channels.
3. Chunky customer discounts and Finance Deposit Allowances a bit like Honda’s £8000 current offer on ENY1. Sub £300/month leasing terms for EVs.
4. Quarter end tactical frenzy and mid campaign changes from OEMs as they wrestle with balancing supply and demand for ICE and EV.

Customers are going to see much more attractive offers as manufacturers look to avoid fines. Electric cars will be more affordable, but retail dealers will face a challenging year as trading complexity increases.

Macro-economics and the markets

The UK Economy has exhibited next to zero growth since Q2 2022, what might 2024 have in store and how might it effect the Automotive sector.

1. Forecasts are weak with just 0.4% GDP growth predicted for the UK economy. Inflation has fallen to 3.9% increasing the likelihood of an early interest rate cut.
2. Predictions for the New Car and Van (LCV) markets by the SMMT. Cars = 1.96m (+5%), LCV = 334k (+0.75%).
   Well shy of the pre-pandemic normal.
3. The Used Car market looks resolute but the pandemic parc impact will continue to influence the market and should support stable pricing in the 3-5 years age range.
4. Aftersales demand will be robust. Drivers will keep their cars longer, capacity is still stretched, and many OEMs have significant warranty challenges.

An election year is never good news for trade and the market will not support much growth so there should be a strong focus on cost controls and investment that can yield future efficiencies.

Mergers & acquisitions

2023 was record year for deals in the Automotive Retail sector with overseas investors spending >£1.2bn to acquire, Jardine, Lookers and Pendragon. What will 2024 bring?

1. Someone will take a run at Vertu Plc. The recent share price fall only serves to entice potential buyers to the undervaluing of this business.
2. Distress in the sector will return and offer some opportunity for better value acquisitions. Expect to see a rise in CVAs.
3. Lithia, Hedin, Alpha Auto and Van Mossel will all look to develop their UK presence further.
4. Manufacturers will leverage their power of veto in order to more pro-actively shape their distribution networks.

We don’t see 2023 being topped in terms of deal value but with Agency looming and more difficult trading conditions there will be motivation for buyers and sellers to come to market.

Tax and compliance

2023 saw the launch of the Consumer Duty and HMRC stepping up on VAT inconsistencies between invoice and finance documents. 

What should car dealers be aware of in 2024?

1. The introduction of Agency Agreements may have an impact on a dealerships partial VAT exemption therefore Finance Directors should be aware of the implications.
2. Internal governance should retain focus on ensuring that firms do not expose themselves to any corporate criminal offences (CCO) proceedings by HMRC.
3. We will see an increase of Electric Vehicle Salary Sacrifice schemes to help achieve the ZEV mandate and OEM push.
4. Opportunity to reduce Corporation Tax bills with the continuation of "Fully Expensing" on qualifying investments.

As always Tax and compliance offer equal share of threats and opportunities. Increasing complexity often brings increased risk and with the automotive sector due to have a challenging year it is important to ensure businesses have appropriate support.

OEMS and distribution

Who will be the winners and losers in 2024. With electric vehicles set to play a more important role what will this mean for the car manufacturers.

1. The ZEV mandate is an opportunity for new brands to grow share. We expect to see ORA, BYD and Chery have a greater influence in the market than in 2023.
2. 2024 looked like it would be a busy year for Agency Sales, but we anticipate that the ZEV mandate and weak UK economy will cause brands to delay their plans.
3. Ford will struggle to defend their second place in the UK Passenger Car market with only Mach-E in the EV segment as we enter 2024.
4. We will see further reductions in dealer numbers but an acceleration of multi branding distribution as dealers look to consolidate operational costs.

2024 should be the year when supply constraints disappear however with a weaker demand for new cars and vans we expect to see OEMS return to the pre pandemic actions and cost cutting actions within car distribution.