Don't Drive the British Motor Industry into the Ground; UK Consumer Confidence Is at Its Lowest Level since 1974. the Most Dramatic Impacts Are in the Housing and New Vehicle Markets, but All Consumer Spending Is under Pressure. Paul Everitt, Chief Executive of the Society of Motor Manufacturers and Traders, Says the UK Is Not Alone in Facing Difficult Economic Conditions and That a More Urgent Political Response Is Now Required
Byline: Paul Everitt
The UK automotive industry is a source of high value employment and is critical to the long-term success of the economy. Government needs to use the pre-Budget report to set out its response to these challenging times and the measures needed to rebuild consumer confidence.
The UK is the third largest car market in the EU with 2.4 million new cars registered in 2007. Nine major car makers and six commercial vehicle manufacturers are producing 1.75 milllion vehicles in the UK every year. Over 850,000 people are employed by the motor industry, which has a manufacturing turnover of pounds 51 billion, exports 75 per cent of manufactured vehicles and sustains a competitive automotive retail market.
The strength of the UK market in new vehicle sales and production is highly important for the profitability and competitiveness of Japanese, US and European vehicle manufacturers alike.
The current economic climate has negatively impacted on new car demand and the first warning signs of lower assembly activity among manufacturers in the UK are starting to be seen. New car sales fell by 10.7 per cent in the three months to August; private sales were down 15.1 per cent.
The August new car market was down by 18.6 per cent, with only 63,225 registrations, and our members expect worse ahead. The purchase of a car is the second largest expenditure item for consumers, after buying a house.
The car market is highly vulnerable to changes in discretionary spending and falling consumer confidence is damaging demand. The industry's consensus forecasts for new car registrations have been substantially reduced.
SMMT expects to see a 10 per cent fall in new car demand over the remainder of the year, reducing the 2008 new car market to an expected 2.26 million total registrations and a further fall to 2.16 million in 2009. UK vehicle makers are facing the most challenging market conditions since the early 1990s.
The dramatic falls in new car registrations are now being mirrored in the market for light commercial vehicles. Total van registrations have fallen by 13.8 per cent in the last three months. Heavier commercial registrations have not yet been impacted but companies are reporting a rapid decline in new orders.
SMMT believes government must consider the long-term impact that a falling vehicle market would have on UK manufacturing and its contribution to the economy. Boosting consumer confidence is essential to sustaining the new vehicle market and there are a number of specific measures that would help support the sector.
Budget 2008 announced radical motoring tax changes for 2009/10 and 2010/11 which created uncertainties and confusion among private and business car buyers at, possibly, the worst time in the economic cycle. New car purchases should not be deferred or penalised as a result of motoring tax policy, thereby delaying economic recovery and undermining the achievement of the Government's own road transport CO2 and emissions targets.
To provide a boost to new car sales SMMT recommends policy makers to: Review Budget 2008 VED changes: Abandon plans for a new "first year rate" for VED from 2010/11, which is a hidden sales tax; mitigate the impact of VED rises and retrospective rebanding from 2009/10, which significantly increase motoring costs for families and lower income groups.
Incentivise fleet renewal: Additional revenue raised through VED changes should be hypothecated and used to aid consumers with the transition to lower CO2 emitting cars. …