British motorists drive off austerity with bumper new car sales

http://www.theguardian.com/money/2015/feb/05/january-car-sales-seven-year-high-uk-boom

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Britain has had some difficult economic years: austerity has bitten, wages have slumped, and home ownership has become a dream for many – but new cars have been flying off the forecourts.

On Thursday, the Society of Motor Manufacturers and Traders confirmed the 35th consecutive month of growth in new car sales and the biggest January sales for eight years. While car sales have stalled or only inched forward across the sickly eurozone they have roared ahead in Britain, which is fast becoming an island jammed by drivers of sparkling white Ford Fiestas, bought on cheap credit.

Last month 164,856 new cars were registered, the best start to the year since 2007, with surging sales of company cars adding an extra 10,000 to the previous January’s figures. Sales have been driven by alluring loan deals underpinned by historically low interest rates and personal contract hire schemes.

Increasing numbers of buyers are signing up for these fixed-term contracts, often three years, typically paying a few hundred pounds a month towards the cost of a new car. They rarely buy the car outright, but at the end of the term instead upgrade to a new model. According to many analysts the three-year contracts will continue to drive new registrations throughout 2015, because the market started to boom when the financing packages were introduced widely back in 2012. Drivers who bought their cars on these schemes will now in effect be buying a new one again.

An increase in business confidence can be read into the surge in company car sales, up 18.1% on January 2014, though tax breaks for companies and sole traders on relatively low-polluting vehicles – whose criteria are due to be tightened from 1 April – may have accelerated sales on certain models.

Mike Hawes, chief executive of the SMMT, said: “These figures mark an encouraging start to the year after a very strong 2014, with a strikingly robust company car market as businesses take advantage of the attractive finance offers currently available.”

Related: British car sales zoom ahead, but for how long?

He said sales climbed more than 9% last year, fuelled by stronger than expected economic confidence. This year the dealers are expecting some levelling off because “demand is back to pre-recession levels following record-breaking growth”.

Britain’s best-selling model remains by some margin the Ford Fiesta, followed by the Vauxhall Corsa and Ford Focus. Ford’s total sales slipped slightly but it remains the biggest player in the market.

While white van man is now viewed as an important target for politicians of all colours, the fasting growing demographic on the road is white car man and woman.

Seven years ago white was seriously unloved: fewer than one in 100 new cars got the white paint treatment. But car fashions have changed fast. Now almost one in four new cars are white. Last year Ford sold more than 25,000 white Fiestas.

The number of electric and other alternatively fuelled vehicles shot up 60% to 4,598, though they are still a tiny fraction of overall sales.

Dealers and analysts were divided on whether sales figures, which are often read as a barometer of the economy, could sustain their growth throughout the year.

“It’s extremely positive,” said Sue Robinson, director of the National Franchised Dealers Association. She said that Europe too was showing signs of recovery, with moderately increased sales in Germany and France, and a 27.5% leap in new cars sold in Spain thanks to “improving consumer sentiment, more disposable income and government incentives”.

The Spanish government has been operating a scrappage scheme, offering cash incentives to motorists to upgrade their vehicles.

IHS Automotive, which predicts further but slower growth this year, said tax breaks on relatively fuel-efficient vehicles may have helped to stimulate business sales, but sales were also being powered by cheaper oil and the declining cost to drivers at filling up their tanks. A stronger pound and weaker euro could also mean more deals for British buyers from European carmakers. Lower inflation is likely to result in interest rate increases being deferred, keeping up the flow of cheap credit.

Chris Sutton, of Black Horse, which arranges motor finance, said: “Manufacturers and dealers believe that low rate finance has helped to sell new cars so we expect this to continue and this will be helped by the expectation that interest rates will rise at a later date than previously expected.”

John Leech of KPMG said sales would go higher. “Attractive finance offers from car manufacturers and rising consumer confidence continue to power the UK new car market. Consumers are seeking the latest fuel efficient vehicles as the cost of motoring remains high, despite a fall in oil price,” he said.

“The market should remain strong throughout 2015 as consumers who bought cars on the many three-year finance deals in 2012 switch to a new car.”

The trading in and up of leased models could lead to a “new normal” for car sales higher than recession levels.