As 2024 draws to a close, the UK motor retail sector has endured one of its most challenging years. Last December, we shared our expectations for 2024 Predictions for 2024 - Cambria Private Capital. While we anticipated some of the industry's hurdles, the year brought surprises that tested the resilience of businesses across the sector. Below, we reflect on our key predictions, analyse what we got right and wrong, and look ahead to the opportunities and uncertainties 2025 will bring.

Revisiting Our 2024 Predictions

1. Persistent Inflation and Interest Rates

• What We Predicted: “Inflationary pressures will persist, and rate cuts are not a foregone conclusion. The Bank of England will have to navigate carefully, as we are less optimistic than financial markets on the pace of rate reductions.”

• What Happened: This call was spot on. Inflation remained stubbornly high for much of the year, driven by service costs and energy price rebounds, with the Labour Budget adding additional complexities late in the year. Is Inflation Making a Comeback? - Cambria Private Capital. Rate cuts failed to materialise, with policymakers prioritising inflation control over stimulating growth.

• Reflection: Our caution on rate cuts proved prescient. However, the stickiness of core inflation—particularly rents and services—highlighted the ongoing challenges for monetary policy in taming price rises.

2. Electrification and the ZEV Mandate

• What We Predicted: “The ZEV mandate will push manufacturers to accelerate EV supply, but consumer readiness remains uncertain.”

• What Happened: The ZEV mandate drove an aggressive supply of BEVs (Battery Electric Vehicles), but consumer adoption lagged. High upfront costs, range anxiety, and charging infrastructure gaps remained significant barriers. OEMs appeared to overestimate consumer readiness, mainly due to regulatory pressures requiring them to meet EV sales quotas.

• Reflection: While we accurately identified the tension between regulatory supply pressures and market readiness, the scale of this mismatch—reflected in soft BEV sales and weak residual values—exceeded expectations. The fragility of supply chains and rising inventories of BEV parts also highlighted manufacturers' challenges.

3. New and Used Car Market Dynamics

• What We Predicted: “We anticipate stabilisation in used car prices and a gradual recovery in new car supply.”

• What Happened: Used car prices softened, but demand remained resilient. Vehicles, particularly EVs, continued to sell faster than a year ago. The new car supply improved incrementally, yet it failed to meet demand fully due to ongoing production inefficiencies and geopolitical disruptions.

• Reflection: While our forecast of used car resilience was correct, the expected recovery in new car markets was muted. Margins for new vehicles came under significant pressure, with retailers reporting return on sales as low as 0.5%-1% and production plant utilisation across Europe and the US remaining too low for profitability.

4. Alternative Finance and Market Selection

• What We Predicted: “Surging interest in private credit markets will drive growth, and selectivity in debt and equity markets will remain crucial.”

• What Happened: Private credit markets expanded as traditional bank lending tightened, offering opportunities for those with a careful approach. In equity markets, Nvidia’s dominance underscored the importance of selectivity, with investors favouring transformative technologies like AI. Insights from Nvidia's Triumph and relevance to founders and automotive - Cambria Private Capital

• Reflection: This was another accurate call, but the application of AI across the industry—particularly in streamlining supply chains and enabling software-defined vehicles—emerged more slowly than anticipated.

5. Sustainability and Human Touch

• What We Predicted: “Sustainability will remain central, but businesses must balance digital transformation with a focus on the human touch.”

• What Happened: Sustainability remained a key theme, significantly as EV adoption grew, but operational pressures often shifted focus to short-term cost management. Businesses that combined digital tools with a strong customer experience—such as extended test drives for EVs—found a competitive edge.

• Reflection: While sustainability stayed on the radar, the industry’s focus often leaned more heavily on managing immediate financial pressures than long-term ESG goals.

Lessons Learned from 2024

1. The Cost of Uncertainty: Economic and regulatory uncertainty, particularly around the ZEV mandate and new car supply, weighed heavily on consumer confidence and business margins.

2. The Need for Agility: Businesses that adapted quickly—leveraging data, optimising inventory, or engaging proactively with EV buyers—were better positioned to weather the storm.

3. Operational Efficiency is Key: With gross margins tightening and employment costs rising, efficiency improvements and cost control became survival mechanisms for many dealerships.

Looking Ahead: Themes for 2025

2024’s challenges have set the stage for an equally demanding but opportunity-rich 2025. Key areas of focus include:

• Navigating Regulatory Shifts: The ZEV mandate, BEV inventory management, and changing tax treatments will demand close attention.

• Accelerating Electrification: Addressing barriers to EV adoption will remain critical as regulatory deadlines loom.

• Resilience in Private Markets: Selectivity in alternative finance and equity investments will be crucial amid ongoing economic uncertainty.

• Adapting to Market Pressures: Dealers must prepare for continued margin pressures in new and used car markets.

Closing Thoughts

2024 has been a challenging but instructive year for the automotive sector, filled with challenges that tested businesses’ resilience and adaptability. As we reflect on the past year, we look forward to returning in January with fresh predictions for 2025. Until then, we wish you a well-earned break and hope you enjoy a happy and healthy start to the new year.

Have a great week!