IMI Magazine

IMI Magazine

News Analysis - By Arthur Way

Can ‘the Port’ weather the storm?

After notching a further, albeit more moderate, operating loss in its European operations in 2005, GM is looking to achieve at least break-even during the present year. But, with the corporation’s overall financial position remaining precarious and overcapacity still afflicting the auto industry as a whole, it’s likely that plant closures will be high on chairman Rick Wagoner’s agenda.And that again puts a question mark against the future of Ellesmere Port, GM’s sole surviving UK car assembly facility. Those with long memories will recall that British vehicle producers were persuaded by government to establish assembly facilities in areas of high unemployment, such as Merseyside and central Scotland during the 1960s, despite their remoteness from the main centres of motor industry activity.

Any GM executive in Detroit or the European headquarters in Zurich, looking at a map of Europe with the blobs representing GM’s assembly operations, would surely question the viability of a marginal assembly operation on the westernmost fringes of the region.

GM must be mindful that Ford’s withdrawal from UK vehicle manufacturing appears to have done nothing to diminish its market presence and there seems little public disquiet over the fact that all Ford-badged cars are imported. Ford remains market leader (just) with Focus the top selling model for seven consecutive years.

On the other hand, Ford retains a significant assembly presence with its Premier Automotive Group, and the last thing Vauxhall wants is adverse publicity when it is so close to toppling Ford from its number one slot. Maybe the future of Ellesmere Port will be a political decision as much as an economic one.

Virgin just not tempting enough

It is tempting to believe that the closure of Virgin Cars is the final chapter in all those scare stories where the internet would wreak mayhem on the traditional franchised trade. Not only was the dotcom boom at its height when Virgin Cars was launched in 2000 but the Virgin brand seemed sufficiently bright to sweep all before it.

After all, hadn’t the mighty British Airways squared up to fledgling Virgin Atlantic and been found wanting?

But several years after the euphoria generated by the new band of online automotive entrepreneurs, the internet is fulfilling a noticeably less inclusive role among car buyers.

They tend to use it more for gathering information and seeking the best deals rather than placing orders. As a rule, consumers still prefer to source from conventional showrooms where they can see the whites of the salesperson’s eyes and, crucially, have contact with the product.

However, it would be wrong to believe that this latest development represents a diminution of the online threat. The most successful dealer groups of the future are expected to combine the best of both approaches, with a user-friendly website acting as a ‘trap’ to entice prospective buyers into their showrooms. This trend is even more likely since changes to block exemption mean that franchisees are no longer limited to a defined local territory.

Even Virgin Cars saw the logic of having conventional dealerships. Had it continued, it would almost certainly have added to its single outlet, thereby moving towards the retail motor industry ‘norm’ of having sites with an internet presence as opposed to being simply an online trader.

Lotus on the move?

Lotus has always been on a roller coaster, lurching between imminent demise and glittering future. Fingers crossed, the company appears once more to be shaping up for one of its more dazzling periods. Along with a new boss comes a go-getting development programme which, if all goes according to plan, will see a flurry of new models and a tripling of annual output to 15,000 units.But there’s a catch. Hethel – the marque’s Norfolk base for the past 40 years – may miss out on some of the action. This follows the apparently lukewarm response from government over Lotus’s request for financial aid. Now the company is expected to look at alternative manufacturing facilities in lower cost countries, perhaps in central Europe, where there would be the added bonus of financial backing.

It is unlikely that such a move would be seen to compromise the integrity of the product, even among the most intransigent Lotus aficionados. Admittedly, it would never be possible for a Ferrari to originate from anywhere but Italy, but Bentleys are being assembled in Germany and Porsches in Finland, so the prospect of a non-British built Lotus is not unthinkable.

Gain with pain

On the surface, there is good reason to be cheerful over December’s new car market.

Unit sales were  9% up on the previous December. Adding to the cheer, new registrations reached their highest ever December total.

Dig a little deeper, though, and the message is far from buoyant. For a start, December was the only month in 2005 to record a year-on-year sales increase; for the year as a whole, the market declined by 5%. Moreover, a special factor entered into the frame in the closing month as business users took advantage of the final opportunity to benefit from the 3% company car tax waiver for Euro 4 diesel vehicles. The significance of this is indicated by the staggering 45% market share secured by diesel-engined cars in December and the record 37% share for the complete year.    

It is difficult to summon much enthusiasm for prospects for the rest of this year. Private buyers, already an endangered species last year, seem likely to be under further pressure in ’06. Consumers are saddled with debts of more than £1,100bn – roughly £19,000 for every man, woman and child. No wonder personal bankruptcies are rising sharply. Against this background, expect more crazy deals in a bid to prop up sales. The lesson of America should act as a stark warning, though, where consumers have been effectively bribed through financing deals and upgrades to enter the market. The result is a highly respectable market volume, but a great deal of pain for some of the principal players.

Warming to ‘tlc’

After an initial skirmish, servicing deals look set to occupy more of the central ground in the battle to increase car sales. Motorists have warmed to schemes which offer predictability when it comes to  maintenance costs. A notable success is Mini tlc – a transferable 5-year/50,000 servicing package covering parts, lubricants and labour for just £150.

Though no-one has yet offered a ‘sealed-for-life’ bonnet, extended service intervals have been made possible by greater reliability of vehicle assembly and component content. Ford cites these as reasons for ‘slashing’ the cost of service schedules on all its models (apart from Galaxy) registered this year. On a Ford Focus 1.6 petrol, there’s a saving of £169 over three years/62,500 miles, and a £118 saving on a Mondeo 2-litre TDCi.

As well as a selling point, moves like these are another example of manufacturers’ determination to keep vehicles within the franchised network for as long as possible and put further pressure on the independent aftermarket.