http://www.businessweek.com/stories/2008-09-05/auto-sales-plunge-in-britainbusinessweek-business-news-stock-market-and-financial-advice

Global Economics

Auto Sales Plunge in Britain


Reduced consumer spending and confidence whacked August car purchases by nearly one-quarter. But smaller models were up

Confirmation that consumer confidence and spending on "big-ticket" items is testing new lows came yesterday with the release of the latest figures on new cars sales. The Society of Motor Manufacturers (SMMT) reported an 18.6 per cent annual decline in sales in August, with sales to private buyers rather than the fleets down by a massive 23.6 per cent.

The news comes as the Halifax House Price index followed the Nationwide's into recording double-digit price declines in house prices, and the Bank of England resisted calls for relief by leaving interest rates on hold, at 5 per cent.

In a telling development, sales of sports cars and SUVs are down by even more than the average, while small cars increased their market share. Sales of Porsche cars, the City dealer's wheels of choice, are down 26.6 per cent in the year to date, a reflection of declining City bonuses and employment. By contrast, the tiny Smart car has seen its popularity more than double, up 104.6 per cent, with almost 5,000 new examples on the road so far in 2008.

The spiralling cost of fuel has inflicted some nasty dents on the sports car and SUV marques; Corvette, Aston Martin, Bentley and Jeep have seen sales tumble. However, the value-for-money Kia range is in demand, while the Dodges and Cadillacs doing well in the charts are much smaller and cheaper than the traditional notion of an American car.

Overall, these are the worst August registration figures since 1966, though the figures are distorted because August was traditionally the peak month for car sales, until the system was changed in 2002. Yet the trend is firmly down, taking the year to date as well: down by 3.8 per cent so far on 2007; and by 10.7 per cent comparing the June-August periods. The picture is of an accelerating decline, and is not helped by the credit crunch which has restricted the availability of car loans from the banks (some companies are instead lending their customers the money, at increasingly competitive rates).

Economists point to a very close correlation between new car sales and consumer spending. Allan Monks, at JP Morgan, commented: "Our forecast anticipates a significant 4 per cent annualised contraction in third-quarter retail sales ... The weakness in the car registrations through to August is broadly consistent with this forecast."

For two leading British brands, now owned by Tata of India, there is mixed news. Boosted by the accomplished new XF saloon, Jaguar is up 12.7 per cent; Land Rover, which has recently cut shifts, is down by 15.6 per cent. Mini sales are down slightly.

These things still matter to the UK economy. Adding in Vauxhall, Toyota, Nissan, Honda, BMW, Lotus, MG-Nanjing, Ford and others making cars, vans and engines in the UK, 195,000 jobs rely on auto manufacturing; about 1 to 2 per cent of GDP. Including the retail and repair trades, some 800,000 people depend for their livelihood on automotive activities.

The UK's best seller in August was the Vauxhall Corsa; the Ford Focus leads the market in the year to date, as it has for most of a decade. There was a further shift towards diesels, commanding 44.3 per cent of the market, and despite a relative rise in the price of that fuel. The VW Golf was the nation's favourite diesel-powered choice.

The outlook is gloomy; but, if you have the money, today might be a good day to drive a hard bargain on a new convertible, and enjoy what little sunshine there is.

Provided by The Independent—from London, for Independent minds

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