As we enter 2025, a complex landscape awaits the UK automotive retail sector, shaped by global and domestic influences, writes Mike Allen.
Economic Context: A Challenging Start to 2025
Persistent inflation and transformative shifts in technology and consumer behaviour demand adaptability and measured decision-making. The global context, marked by US protectionism and China’s continued dominance in the electric vehicle (EV) market, poses challenges and opportunities for the UK automotive retail sector as it works to address its unique set of circumstances.
The UK economy begins the year under the shadow of subdued momentum from the latter half of 2024. Economic uncertainty prevails, but there are tentative signs of recovery in the latter part of 2025. GDP growth is projected at a modest 1.4%, held back by weak consumer demand and constrained investment. However, easing inflationary pressures and wage growth are expected to support a rebound in the second half of the year, offering some encouragement for the industry.
Inflationary Pressures and Consumer Confidence
Inflation is forecast to peak at 3.2% in April, largely driven by rising utility costs and ongoing wage pressures. The Bank of England is anticipated to reduce interest rates in the second quarter, carefully balancing the need to control inflation while fostering economic growth. While consumer confidence is showing gradual improvement, higher costs for essential goods and slower-than-expected rate cuts could limit spending in the early months of the year. For the automotive sector, this could translate to continued pressure on retail volumes.
Transition to Electric Vehicles: A Pivotal Year
The transition to electric vehicles remains a defining trend in 2025. December 2024 marked a milestone for the UK, with monthly EV registrations surpassing those of internal combustion engine (ICE) vehicles for the first time. Chinese automaker BYD, which achieved over four million global EV sales in 2024, continues to set the pace, underscoring the urgency for UK and European manufacturers to enhance local battery production and streamline supply chains. Rising global inventories have intensified competitive pricing strategies, with incentives increasing by over 25% in key markets such as the United States. Similar dynamics are emerging in the UK, where dealers face the dual challenge of aligning with shifting consumer demand while managing rising operational costs.
Consolidation and Digital Transformation
The ongoing move towards EVs and direct-to-consumer sales models is reshaping the dealership landscape in the UK. Valuations for high-performing dealerships remain strong, yet weaker players face mounting headwinds. Industry consolidation is likely to accelerate as businesses seek scale and efficiency to adapt to these changing conditions. Established automakers such as Nissan and Stellantis are contending with restructuring pressures and intensified competition from Chinese manufacturers. The proposed Honda-Nissan merger exemplifies the strategic realignments required to maintain competitiveness in this evolving market.
Tech investment: A Strategic Priority
Dealership networks continue to respond to rising operational pressures by deploying new technologies and driving digital transformation. Innovations aimed at improving operational efficiency and enhancing the customer experience remain a priority. Investors are placing significant emphasis on artificial intelligence (AI), software-as-a-service (SaaS), and mobility technologies. Companies leveraging AI to optimise operations or those embedded within the EV supply chain are particularly well-positioned to attract investment.
Implications of Geopolitical Shifts
The return of Donald Trump to the US presidency adds further uncertainty to the global trade environment. With his inauguration scheduled for 20 January, proposed trade policies are expected to impact international markets. Tariff measures targeting Chinese EVs and raw materials, while aimed at bolstering domestic manufacturing, carry the risk of inflating costs and disrupting supply chains. For the UK, these developments could have far-reaching implications, necessitating careful navigation of a rapidly shifting geopolitical landscape.
Regulatory Drivers in Electrification
Domestically, the UK’s regulatory commitment to banning new ICE vehicle sales by 2030 continues to drive urgency around local EV production and charging infrastructure. China’s EV market, expected to exceed 12 million sales in 2025, sets a high benchmark for global electrification efforts. To remain competitive, UK manufacturers must accelerate innovation to counterbalance the scale and pricing advantages of their Chinese counterparts. Furthermore, China’s dominance in lithium-ion battery production highlights the UK’s need to invest in alternative battery technologies and domestic production capabilities.
Outlook for 2025: Navigating Transformation
The year ahead promises to be another significant transformation for the automotive sector. Inflationary pressures and subdued economic growth will present challenges, but the opportunities for growth through EV manufacturing and technological advancement remain substantial.
Global dynamics, particularly those from the US and China, will continue to shape domestic trends, presenting both hurdles and avenues for progress. For businesses navigating 2025, adaptability and strategic foresight will be critical in thriving within this rapidly evolving environment.
Author: Mike Allen, managing director, Cambria Private Capital