The US last week slashed interest rates, in an effort to kick start what some pundits refer to as a ‘sluggish’ economy, but others cheerfully assure us is one on the verge of toppling into an abyss of sub-prime and inflation hell. Although the slashing of interest rates in the UK on such a large scale is not yet being mentioned, it isn’t just the financiers who now have an uneasy eye on their bonuses and profits. Rising energy costs and the end of fixed rate mortgage deals mean that more people are feeling the financial pinch.
Regardless of whether it is good practice or not, many people confronted with these circumstances would decide to remortgage, consolidate the credit cards and start afresh, with the possibility of securing a little extra capital. Hopefully enough to change the car, take a holiday or enjoy the ubiquitous ‘home improvements’ which everyone now seems to think means a 42” plasma screen TV with a cinema sound system.
The trouble is that the provision of credit is becoming increasingly difficult. With a higher percentage of mortgage applications being turned down compared with 12 months ago, and credit card companies having a long hard look at who they lend to, the days of easy finance are fast disappearing. Tougher criteria applied by nervous lenders mean that applications that used to be considered are no longer deemed profitable or worth the risk.
The motor industry is not immune to this. Although there are some superb new deals being offered by suppliers on new stock, a large proportion of new and nearly new used cars are bought on some form of finance deal. With the potential for a sizeable proportion of purchaser’s credit applications to be turned down, this could produce a significant downturn in sales within the industry. Already a third of retailers predict a downturn in sales compared with last year, and it’s only February.
‘We expect a modest fall in registrations this year, and a 2.1 per cent dip in January is in line with expectations,’ said Paul Everitt, SMMT (Society of Motor Manufacturers and Traders) chief executive. ‘Fuel efficiency is a high priority for customers and it is encouraging to see that nearly half of the market is diesel.’
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It’s such a shame when you consider that last year registrations steadily increased, bettering expectations particularly in the final quarter. With a decline to 2.3 million units now expected over 2007 figures, it is difficult not to feel slightly pessimistic. But while the overall market slipped in January, diesel registrations did increase a further 10 per cent. From SMMT figures, diesels accounted for 44.9 per cent of the January total, a record for the month and the second highest-ever share. High fuel costs will see fuel efficiency a main selling point for new car buyers. This, and action on CO2 emissions, should mean that diesels’ market share will grow further.
January is always a strong time for fleet sales, and this sector was up 0.2 per cent and took the largest share of the market at 56.1 per cent. Worth a pat on the back, and perhaps sneakily sticking two fingers up to their accusers, the 4x4 market goes from strength to strength, not only increasing sales by 7.7 per cent, but at the same time making the biggest reduction in tailpipe CO2 reduction, with a decrease of 20 per cent in 10 years. As action on CO2 emissions continues, the attractiveness of a 4x4 which can be economical and leads the way in carbon emission reduction should increase and mean that the diesels’ market share will grow further.
Ford and Vauxhall, not surprisingly, remain the UK’s top selling marques, while Mercedes, Audi, BMW and Nissan all recorded significant growth. The Volkswagen Golf was the best selling diesel, just pipping the Ford Focus, which topped the league table and was the overall best selling car.
It’s easy to get pessimistic about the money market, but the issue of credit, who gets it and how easily, is going to impact on individuals and industries. By the time you read this the Bank of England may well have followed the US Federal Reserve’s lead and cut interest rates, but it’s no good having the cars leaving the factories and sitting on the forecourts and no one able to buy them.