False dawn for auto industry as new car sales soar?

Car sales are up 60% - but the end of the scrappage scheme and the VAT cut has a lot to do with that.

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Last Updated: 06 Nov 2012

On the face of it, the latest UK car sales figures look like great news for the beleaguered auto industry: a total of 158,062 new vehicles were registered in November, a 57.6% increase on the same month last year. However, before we get too excited, it’s worth remembering a couple of things. For one thing, last November new car sales suffered their biggest month-on-month drop of the downturn, so we’re comparing against a very low base. What’s more, people are clearly trying to get in before the end of the Government’s various stimulus schemes early next year, which is also boosting sales artificially. So do carmakers really have any cause for optimism yet?

In truth, the headline figure looks good because car sales were in the doldrums this time last year; by way of context, last month’s sales were about the same level as in November 2007. All in all, about 1.84m new cars have been driven off the forecourts in the first 11 months of 2009, which about 9% down on the same period in 2008. That’s not great, but the industry will tell you that it’s an awful lot better than they feared it would be. (Apparently the Ford Fiesta was the biggest selling car of the month for the tenth time this year - small is clearly beautiful in Austerity Britain).

The principal conclusion we can draw from this is that the Government’s efforts to stimulate demand have obviously worked, at least to some extent. The ‘cash for bangers’ scrappage scheme has clearly persuaded people to trade in their old cars for new ones – it accounted for about a fifth of last month’s total sales. Cutting VAT to 15% has also helped, since that’s quite a decent saving on the cost of a new set of wheels.

The problem with both of these temporary schemes, of course, is that they’re temporary. VAT goes back to 17.5% in January, and the scrappage scheme ends in February (unless industry lobbyists succeed in getting it extended again) – at which point car sales might drop off a cliff faster than Thelma & Louise’s Thunderbird. Time will tell whether these stimulus measures have created additional demand, or just persuaded people to bring forward purchases they would have made anyway. If it’s the latter (as would be our fear), that’s not necessarily a bad thing. But it does mean the car industry could face an equally torrid year in 2010.


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False dawn for auto industry as new car sales soar?
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