UK vehicle registrations drop as chip shortage affects growth

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July has seen a significant year-on-year decrease in vehicle registrations in the UK as the global semiconductor shortage continues to bottleneck production effort towards electrification, according to the latest data from the Society of Motor Manufacturers and Traders (SMMT).

New car registrations fell by nearly one-third for the month and nearly one-fifth when compared with the decade average, marking the worst July in 23 years. In all 123,296 new vehicles were purchased.

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The size of the decline has been artificially inflated with comparisons to last year, when vehicle purchases saw a surge in sales coinciding with the end of the first UK lockdown over the early summer period.

However, the July performance was down -22.3% on the average recorded over the past decade, as the ongoing semiconductor shortage and the ‘pingdemic’ - spikes in cases leading to staff shortages, which has become a problem within UK industry - impacted both supply and demand.

The semiconductor shortage has meant manufacturers have been unable to produce enough cars to meet demand. Deliveries are being drip-fed to automakers owing to increased demand for electronics, which continued to cause vehicle registrations to fall.

The result is the weakest July on record since 1998.

The data shows the main reason for the decline was a slump in deliveries for larger fleets, which at 61,140 units, was some 28.7% lower than the average recorded over the past decade.

Read more: VNC chief warns semiconductor shortage may outlast Covid

Private registrations saw a much lesser decline, clocking in at around 59,841 units - a roughly 10% decrease. However, with the semiconductor shortage expected to last into 2022, these numbers could rise sharply.

SMMT chief Mike Hawes said: "The automotive sector continues to battle against shortages of semiconductors and staff, which is throttling our ability to translate a strengthening economic outlook into a full recovery.

"The next few weeks will see changes to self-isolation policies which will hopefully help those companies across the industry dealing with staff absences, but the semiconductor shortage is likely to remain an issue until at least the rest of the year.

"As a result, we have downgraded the market outlook slightly for 2021. The bright spot, however, remains the increasing demand for electrified vehicles as consumers respond in ever greater numbers to these new technologies, driven by increased product choice, fiscal and financial incentives and an enjoyable driving experience."

However, despite the general trends for the industry for the month, sales in plug-in vehicles continued to grow, with plug-in battery-electric vehicles operating a 9% market share and plug-in hybrids reaching 8%.

The watchdog reports that all major UK brands saw declines, but the most popular models remained superminis, dual-purpose and lower medium cars.

The UK's economic output continued the grow, the SMMT report, with spending on luxury items expected to bounce demand back during the fourth quarter. However, it expects demand to continue to slump for August, which has always typically been a slower month for vehicle purchases.

The latest SMMT outlook has been revised downward and now forecasts registrations to reach around 1.82 million units in 2021 - representing an overall increase of 11% on 2020, but still lower than the 1.86 million forecast in April, and still around one-fifth below the decade average.

Read more: Major automakers mark first quarter boom

However, on a more positive note, the SMMT predict battery-electric vehicle demand will continue to increase in the coming months and forecasts these models will account for 9.5% of all registrations by the new year.

Plug-in hybrids are expected to operate a 6.5% share within the same time frame, collectively totalling around 290,000 units by the end of the year.

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