Kia UK rides the pandemic and microchip shortages storm

If the saying ‘when the going gets tough, the tough get going’ rings true, then Kia UK is made of very stern stuff indeed.

During the financial crisis of 2009, it was one of the main manufacturer beneficiaries of the Government’s scrappage scheme as it capitalised on the car-buying incentive to supercharge its registrations and establish itself as a mainstream brand.

And now, in the toughest market conditions since – the result of the Covid-19 pandemic and vehicle supply shortages – it has been one of the few manufacturers in the UK to grow its market share, with this success driven by the fleet sector.

Kia UK is on track to achieve its 2021 sales target of 90,000 cars despite the country going back into lockdown at the start of the year and a disappointing Q1 which saw it 7,000 registrations behind its curve.

“If anything has helped us achieve our plans this year, it’s been the fleet market which was the fastest sector to recover back in April,” says Steve Hicks, sales director at Kia UK.

“As a manufacturer, if you don’t achieve what you want in Q1 it’s almost impossible to catch that volume back, demand just goes. But we managed to sell through that as best we could and, right now, we still have cars an are delivering cars to all of our customers in all sales channels.

“I’m not saying we have huge supply, but deliveries have been about 8,000 to 9,000 a month, which is above the (annual) 90,000 sales plan.

If the saying ‘when the going gets tough, the tough get going’ rings true, then Kia UK is made of very stern stuff indeed.

“If anything has helped us achieve our plans this year, it’s been the fleet market which was the fastest sector to recover back in April,” says Steve Hicks, sales director at Kia UK.

“As a manufacturer, if you don’t achieve what you want in Q1 it’s almost impossible to catch that volume back, demand just goes. But we managed to sell through that as best we could and, right now, we still have cars an are delivering cars to all of our customers in all sales channels.

“I’m not saying we have huge supply, but deliveries have been about 8,000 to 9,000 a month, which is above the (annual) 90,000 sales plan.

“So many other brands don’t have cars and some don’t even have estimated lead times, while we’re roughly on a three-month timescale.

“We’re selling a lot for March right now. We’re going into next year with a huge order bank, but that will slow down as other manufacturers’ supply chains ramp up again.”

Latest Society of Motor Manufacturers and Traders sales figures show Kia registered 81,532 cars in the UK this year up to the end of October, an increase of 29% on the same period in 2020 in an overall market which had grown 2.8%.

This sales performance has given Kia a market share of 5.8%. It’s also has a 6.6% market share in fleet. “That’s a long way from the 2.6% we had in 2010,” says John Hargreaves (pictured), general manager for fleet and remarketing at Kia UK. “We’ve sold nearly 50,000 cars into fleet already this year.”

Supply has been key

Hicks says there is no doubt the fact Kia had a consistent supply of vehicles throughout the year has been a major factor in its sales success.

“You would never normally see a market share jump from where we were to where we are right now, and that can only be down to other brands not having supply,” he adds.

“But that’s great news for us, it’s like making conquest sales. Many of our new customers have had no experience of Kia product before.

“The scrappage scheme was great for us many years ago as more customers got into our cars.

“I see the same right now. We are winning some orders that probably will go back to their other manufacturers when they have supply again, but those customers are getting their first experience of Kia and I hope that’s a good one.”

This year’s sales trends have also seen themanufacturer’s retail:fleet split shift substantially.

Usually it mirrors the market, which is currently 48:52 in favour of fleet, but Kia is now at 40:60.

“That’s a real difference for us because, as a brand, Kia has traditionally been more retail than fleet,” adds Hargreaves.

In time, he expects this to return to reflecting the overall market split, with the manufacturer looking to grow by 5,000 registrations a year for the next five years.

“The way we try to work is there is an aspirational number, but it’s never to achieve it at all costs,” says Hargreaves.

“In fleet, you don’t want to be too successful in certain channels and what I’m particularly proud of this year is that we’ve grown across the board.

“Our corporate share is 6.7%, so it’s very similar to our overall fleet share.

“We’re doing some rental, but less than 2% of the volume we do is rental that doesn’t come back to us, so that gives us good control over the residual values (RVs).

“We’re not intending to start pulling out of some channels as some manufacturers have done, but we will scale back short-cycle business, although we will certainly be maintaining a presence in it.”

Uplift in residual values

Like all manufacturers, Kia is currently seeing a significant uplift in RVs as soaring demand for used cars has sent values increasing by around 25%.

The pricing guides are forecasting residuals will remain strong for the first half of next year, but Hargreaves is more bullish, predicting robust values for the whole of 2022.

“Short-cycle business is a lot of what drives used car values and my discussions with rental companies are very much along the lines that they’re struggling to get manufacturers to supply them with cars,” he says.

“I think there will be a lack of short-cycle cars for most of next year, and that will keep RVs high.”

He adds: “I think most manufacturers are using this as a little bit of an opportunity to reset discount levels, and I suspect we will all try to maintain lower levels of discount so that will help keep RVs stronger as well.”

Getting the purchase price right at the front end is also key to controlling RVs, adds Hicks.

“You could argue that cars such as Sorento (above) and EV6 could be priced higher, but then you are just welcoming incentives and discounting, and that hurts the residuals,” he says.

“We are trying to do everything we can to make sure we have strong RVs because it makes the whole cost of ownership better for fleets.

“We know there will be a correction at some point but we don’t know when, so it’s important we make sure we maximise our residuals, so, whenever the market drops, we won’t drop by as much.”

Hargreaves says one Kia model which will have “limited or no financial support” is its new fully-electric EV6.

He describes it as a “really exciting car” for Kia and believes the quality of the product and its RV strength will mean Kia will not need to support it substantially financially.

Fleet customers are expected to account for slightly more than half of EV6 registrations because of the benefit-in-kind (BIK) tax advantages zero emission cars currently have.

Fleet appetite for EVs

This is reflected by fleets already showing a greater appetite than retail customers for EVs: 36% of Kia’s fleet registrations this year have been either hybrid, plug-in hybrid or battery electric vehicles. For overall sales, this figure is 30%.

“We are now at the stage in fleet where our electric volume is roughly the same as our diesel volume,” adds Hargreaves.

“But we haven’t been pushing (EV) sales, we’ve been responding to demand.

“We’ve had quite a lot of traditional end-user customers who have always had petrol or diesels saying they’re changing to electric, but our fleet success really has been driven by the fact we have all the powertrains. We can go to a fleet and be seen as an impartial advisor reacting to their needs.”

The majority (64%) of registrations to fleets have remained ICE vehicles, and Hargreaves says this is partly down to there being a threshold with high-mileage fleets where the convenience of having a diesel or petrol is greater than operating an EV.

“There is a BIK advantage (on EVs) for the driver, but the company doesn’t get that and I don’t think we’ve yet got to a situation where companies are asking drivers to share that BIK benefit with them.

“That means the financial equation is still in favour of ICE cars. I think if you started to get to a position where company car policies were almost somehow getting the driver to share some of the tax advantages with the employer, you would see a more rapid charge towards electrified cars.”

Kia’s approach to offering customers a comprehensive powertrain offering is epitomised with its new Sportage.

The current SUV has been the brand’s best-selling model range in the fleet sector with around 16,000 registrations so far this year – almost one-third of Kia’s entire fleet registrations.

The new model, which goes on sale this month with first customer deliveries early next year, will be available with petrol, diesel, mild hybrid, hybrid and plug-in hybrid powertrains.

“It will really open up new opportunities,” says Hargreaves. “We’ve had a very good early response from the pricing guides and are expecting strong residuals. We’re very hopeful with new Sportage, especially as it’s building on an outgoing model that is still really strong both as a new and used car.”

Dealerships motivated to ‘do fleet properly’

Kia’s franchised dealer network has an important role to play in the manufacturer’s fleet strategy.

“We’ve got dealers that, if you go back 10 years, were very much retail focused: now they are all fleet focused,” says John Hargreaves.

“Out of our approximately 190 dealers, we’ve got 30 who are business specialists. They are in areas where they can realistically do local business sales and we give them a support package to help them do that.

“But we also have some level of expertise within all dealers now. It’s almost like a dealer standard that they have a fleet-literate person within the dealership.

“The units they sell to businesses also count towards their targets: it’s not the same with all manufacturers, so we have a dealer body that is motivated to do fleet properly.”

Kia is also using its dealer network to expand its mobility offering. Around eight years ago, it started to offer daily rental through 10 sites and this has since expanded to 20.

“We’re looking to expand our dealer rental service into allowing people to have a car on an hourly, rather than on a daily, rental basis,” says Hargreaves.

“We will look at that market space as a potential for expansion, possibly with the rental companies who already offer car-sharing.