Executive Summary

This survey of the UK motor industry assesses the current market and future prospects for new cars, commercial vehicles (including buses and coaches), vehicle components destined for original equipment and for replacement, and powered two-wheelers (motorcycles and scooters). In 1997, the apparent UK market for vehicles and components was worth an estimated £41.41bn, of which cars accounted for £23.53bn and commercial vehicles accounted for £6.02bn (a combined market share of 71.4%), while motor components accounted for £11.58bn (28%) and motorcycles and scooters amounted to £277.1m (0.6%). The value of repairs and servicing, petrol, oil and miscellaneous other motor products are not included in these figures.

Domestic demands for cars, commercial vehicles, vehicle components and motorcycles and scooters have all increased in volume as well as value terms, compared with the previous year, as the UK economy has continued to grow in real terms. This buoyancy has been sustained by rising consumer expenditure on high-value durable goods and improvements in employment prospects, which, reinforced by building society windfalls, have helped to encourage spending.

Following the recent acquisition of Rolls-Royce by Volkswagen, the British car industry, apart from a few small specialist producers, is totally foreign owned. The commercial vehicle industry is in a similar position since Leyland and DAF became part of the US-owned Paccar group in 1996. However, Dennis Group, a producer of specialist vehicles, buses and coaches; and LDV, a producer of vans, remain as independent companies.

Vehicle component manufacture is so far under less foreign control than vehicle manufacture, but appears to be heading in the same direction. T&N, one of the biggest UK companies in the industry, was absorbed as a subsidiary of the US-owned Federal Mogul motor components group in 1997. There is no foreign ownership within the motorcycle industry, but Triumph Motorcycles, as an independent British-owned company, is the sole volume producer of motorcycles in the UK. However, it has less than 5% share of the domestic two-wheeler market. Foreign ownership has strengthened vehicle and component manufacture in the UK, although paradoxically, imports of both continue to grow. The US, Japanese, German and French owners of UK subsidiaries have all announced expansion plans for their manufacturing plants in the UK, and apparently are not deterred by the current strength of the pound against making their long-term investments. In addition, Daewoo, the South Korean motor manufacturer, is the joint venture partner with LDV to produce a new range of vans at a new plant to be built in Birmingham.

Distribution of new vehicles in the UK remains in the hands of franchised dealers, but the structure of the industry is changing. The trend towards multifranchising is growing strongly and the bigger dealers are taking over their smaller and medium-sized competitors, adding their marques wherever feasible. Their exclusive sales territories are being expanded by the manufacturers, but in return, they are expected to generate large volumes of extra business.

Some volume manufacturers have become circumspect about supplying the fleet markets at heavily-discounted prices at the expense of their profits, and are reviewing their policies. Ford, Vauxhall and Rover Group are less concerned about their drop in market share, and are cultivating the private car buyer which is a more profitable strategy. It coincides with the trend to give more choice to employees over the marque of their company car, and the heavier taxation on users of company cars which has the intention of driving many more people into private ownership.

According to the Government's strategy for public transport, it will be given priority over private transport, so demand for buses and coaches is expected to rise steeply. Henlys, once one of the UK's leading car distributors, is now totally committed to the bus market and has withdrawn from selling cars. Arriva (formerly Cowie Group), a leading national car and commercial vehicle distributor, is also heavily committed to public passenger road transport. Other distributors may also enter this market if the prospects continue to be attractive. Volvo and Dennis are the leading providers of chassis and subassemblies to bus and coach body builders in Britain, and will obviously benefit from an expansion in demand.

It is anticipated by Key Note that total apparent UK demand between 1998 and 2002 will increase in value terms from an estimated £42.41bn in 1998 to £49.17bn at constant 1998 prices - a total increase of 15.9%. Basically, economic growth is slowing as the Government has long-term plans to only permit 'sustainable' growth in gross domestic product (GDP) of around 2% per annum. Continuing overcapacity in Europe and greater price transparency throughout the European Union (EU), possibly the ability for the prospective buyer in any EU country to buy without hindrance from anywhere in the community, and the continuing threat of cheaper imports from abroad, particularly the Far East, will all have an influence on the market. A major uncertainty which could transform prospects for new vehicle sales is whether the Government will make any major effort to persuade the owners of between 10 million and 12 million cars over 10 years-old, to replace these with more fuel-efficient cars.

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