IMI Magazine

News: Analysis

Car sales: Prepare for a bumpy ride

With UK new car demand to the end of April an encouraging 24% higher than in the corresponding period of 2009, it's no surprise that industry forecasts are being revised upwards. The SMMT now anticipates that new car sales in the current year will reach 1.924m - almost 6% and more than 100,000 units higher than its January

There's little reason to celebrate, though, since even this revised figure represents a decline of 3.6% on the previous year's outturn and implies a really bumpy second half with substantial month-by-month falls. Moreover, the SMMT does not expect the 2009 level to be breached until 2012 - and then only by a mere 70,000 units.

Look around and there are no grounds for contesting this downbeat assessment. The scrappage scheme provided a strong fillip when it was running but it had the 'jam today' effect of bringing forward demand from private buyers. The country's economic and financial outlook is challenging to say the least with consumers facing a severe squeeze on personal disposable incomes as the new government attempts to remedy the wreckage left by the last one. Clearly the much

hyped rise in VAT, if implemented, will do nothing to assist the new car market's cause which, more than ever, will be dependent on special deals and manufacturer largesse to maintain momentum.

Meanwhile major vehicle distributor groups like Ford Retail, Inchcape, Lookers, Pendragon and Vertu, which have reported excellent financial results in recent weeks - will require all of their wits to prevent the softer tone of the new car market hitting their profits. Continuing efforts to exploit other segments such as used vehicles, parts and servicing will loom large in their business planning and promises to intensify still further the competitive strains in the retail motor sector.

It's possible, too, that coming months will see a further lurch toward dealer consolidation. Latest intelligence shows that motor industry insolvencies - notably affecting small scale operations - rose in March for the third month in a row.

Woeful verdict on dealer finance

Even accepting the organisation's fondness for attacking the motor industry and portraying its participants in the worst possible light, manufacturers and their franchised networks should heed the latest blistering assessment of point-of-sale (PoS) car finance conducted by Which? (formerly the Consumers' Association). The 'charge sheet' against showroom staff, amassed by an undercover team of shoppers, includes a failure to explain car finance deals properly, lack of clarity over interest rates and blatant flouting of the Consumer Credit Act.

This is despite efforts by finance houses and vehicle distributors over many years to improve training - culminating in the Finance & Leasing Association's automotive finance competence test. It suggests that a substantial chunk of the resources allocated towards boosting F&I income within dealerships through a more professional approach on the part of showroom staff has been wasted. Also that the various industry 'summits' convened to provide a kickstart to an increasingly imperilled activity have been in vain.

The remedy is evident but nobody seems capable of applying it with the result that even the sector's most loyal and committed players must be pondering the likelihood of any meaningful recovery.

Fiat's late conversion

With few exceptions, the split between car and truck manufacturing is complete. Fiat has been a late convert to this approach, announcing that non-car divisions are to be divested into a separate group.

The move has been prompted by the burning and restless focus of Sergio Marchionne, Fiat's chief executive, as he pursues a strategy to ensure that the Italian group emerges as one of the global car industry's survivors through a series of joint ventures and alliances.

In this regard, the link with Chrysler is crucial and simply has to work in order to achieve the economies of scale necessary to compete with Toyota, Volkswagen, a revitalised Ford and an ever confident and growing Hyundai, among others. If all goes to plan, an integrated Fiat/ Chrysler will introduce 51 new products and be producing 6m vehicles a year by 2014.

But even this may not be enough. Just as Carlos Ghosn has sought additional partners to the Renault/Nissan grouping, recently adding Daimler to the party with an equity swop, so Marchionne can see the imperative of Fiat/ Chrysler being joined by others. It remains to be seen how much longer BMW and PSA will be able to resist overtures and maintain their stance of splendid isolation.

MAN/Scania off the VW wish list?

Not content with edging ever closer towards supplanting Toyota as the world's number one car producer, Volkswagen is turning its attention towards the truck sector where already it is involved as part owner of MAN and Scania. The German group appears set on establishing a far reaching truck alliance with possibly the ultimate target of full ownership of an integrated Swedish/German group whose world scale would be exceeded only by Daimler and Volvo.

Closer co-operation between MAN and Scania is clearly desirable but will not be easy to achieve. Both groups have a proud and independent background and regard each other as competitors rather than collaborators.

It's no surprise then that Volkswagen's attempts to engineer a partnership between the two have fallen flat, so the plan now appears to implant Volkswagen personnel into key positions in the attempt to bang head together. It's possible that this will cause more problems than it solves. Volkswagen's skill at turning around car companies like Seat and Skoda is undisputed, but both were operations in dire need of Volkswagen's financial resources and managerial expertise. This does not apply to MAN or Scania, so maybe this is one item on Volkswagen's wishlist for world dominance which won't be met.

Hammond's charm offensive

Within hours of the new government taking office, Philip Hammond - the coalition's transport secretary - announced that New Labour's 13-year 'war' against motorists was over. A raft of encouraging messages was relayed to reassure consumers of a new approach wherein living with a car was about to become easier and cheaper.

Positive pointers included no further public funding for speed cameras, an end to 'cowboy clampers' and a possible curb on fuel prices when the cost of oil rises sharply. Road pricing has been ruled out for at least the lifetime of the current parliament and there is the prospect that foreign trucks will be required to contribute to wear and tear of roads through the introduction of electronic pay-as-you-drive charges.

Clearly, all of this is music to the ears of the country's 33m motorists, but it's important to maintain a degree of realism. Car ownership and usage will remain a prime source of finance for the Treasury and, in the context of plugging a towering deficit in the public finances, no rational finance minister would forgo the opportunity to maximise the take from what is for many people an essential part of everyday living.

Arthur Way