The Icelandic Federation of Motor Trades and Repairs (BGS), an umbrella organisation representing companies engaged in the sale and service of motor vehicles, issued a press release this morning outlining developments in new vehicle registrations year-to-date. According to BGS data, 3,218 new passenger cars were sold in Q1, an increase of 54% YoY – and actually, the largest single-quarter total since Q1/2018.
New car sales up more than 50% YoY in Q1/2022
New motor vehicle sales in Q1/2022 were the strongest since 2018. Increased car purchases are a sign that most households’ are well positioned financially, as well as an indication of growth in private consumption overall. Car rental agencies have stepped up their purchases enormously, as the outlook is for a year-on-year surge in tourist arrivals during the peak season.
Individuals bought over half of the new cars sold in Q1. In all, households bought 1,675 new passenger vehicles over the period, about 33% more than in the same quarter of 2021. Even larger was the proportional YoY increase in sales to car rental agencies. Rental companies bought 1,030 new passenger vehicles in Q1, more than half of them in March. This is over three times their total purchases in Q1/2021. Car rental agencies are preparing for the summer, with indicators implying that this year’s peak season tourist numbers will be far higher than last year’s, as we discussed in a recent newsletter.
The past few years’ rise in individuals’ car purchases is noteworthy and, in our opinion, a sign that households are well positioned in spite of the recent economic turmoil. As the chart shows, the downturn in new car sales in 2020 was due almost entirely to a contraction in investment by rental agencies. In fact, individuals’ car purchases increased by over 7% between 2019 and 2020, and by 20% between 2020 and 2021. Factors such as more favourable interest rates on motor vehicle loans and reduced opportunity to spend on overseas travel during the peak of the pandemic probably had an effect on car sales. But the continuation of that growth spurt is a sign that households are holding their ground financially in spite of rising interest rates and the resumption of international travel.
Gallup recently published its quarterly big-ticket index, which measures households’ planned major expenditures, including car purchases. According to the survey, nearly 17% of respondents are very likely or somewhat likely to buy a car in coming months. This percentage rose steadily in early 2021 and has now started to climb again after a temporary dip in Q4/2021. It is therefore highly probable that vehicle sales will remain brisk, as new cars account for a large share of household spending on consumer durables.
The trend described above supports what we infer from indicators such as payment card turnover and the Gallup Consumer Confidence Index, which suggest that private consumption grew handsomely in Q1 and will keep growing apace in the coming term. However, the impact of the Ukraine war has increased near-term uncertainty and could negatively impact consumption growth in 2022.