Rhys Jones and Helen Massy-Beresford London
Britain was the only bright spot in European car sales last year but to maintain the growth, vehicle makers will have to keep offering such hefty incentives that they may erode any remaining profit.
European car sales slumped to a 17-year low in 2012 with only Britain bucking the trend with 5.3 percent growth, although, at just over 2 million vehicles, sales were still 15 percent below the market peak in 2007.
This year dealers are pushing cheap loans and special offers while also launching heavy sales pushes on fuel efficiency and stronger online tools to help persuade people to buy despite the ongoing stagnation in the economy.
So far, their approach seems to be working. In January, UK registrations rose 11.5 percent year on year while in Germany and France they fell 8.6 percent and 15.1 percent, respectively, according to European industry group ACEA.
“Last year punters seemed to have loosened the purse strings a bit, maybe after a few years of not splashing out and because the economic doom and gloom wasn’t as bad as it was [before],” said Derek Jarvis, a car dealer in Bromley, England.
The UK’s Society of Motor Manufacturers and Traders forecasts a 0.6 percent rise in 2013 and 2.6 percent in 2014, with the pace of growth dependent on how quickly consumer confidence recovers.
To take advantage of any confidence, Ford is offering many of its new models at more than a 12 percent discount, while General Motors’ British unit, Vauxhall, is offering interest-free finance for up to five years and a deposit contribution on some models.
Car makers could offer more flexible deals in Britain than in some other markets, Gareth Dunsmore, the general manager for marketing communications at Nissan Europe, said.
More and more vehicles were redirected to British dealers last year by European car makers, convinced they had a better chance of selling them in the UK, while a mild respite in the pound-euro exchange rate during the second half of last year also helped their decision to push new cars into the British market.
“That’s why volumes have gone up,” Trevor Finn, the chief executive of top car dealer Pendragon, said. “Nothing to do with Britain booming. It’s to do with car manufacturers doing better deals because they can.”
A stronger pound increases the margin on European-made cars sold in Britain and gives car companies more room to cut prices. But if the pound drops, as it has in recent months, that will change.
In mainland Europe, offers have become so aggressive in order to shift stock that many cars are sold at a loss. Peugeot has said it was losing about e350 (R4 100) on each car.
“I don’t think mass market [car] makers are making much more than a 3 percent margin at the moment. I’d be happy with an average of 3 percent per sale in this economy,” Jarvis said.
Britain’s figures are also flattered by a practice known as self-registration, whereby car makers offer hefty discounts to persuade dealers to buy cars they know they will not be able to sell, register them themselves, and then sell them on as nearly-new cars.
John Leech, the head of KPMG’s UK automotive group, estimated that about half of last year’s growth could be due to self-registration.
He estimated a car manufacturer offering plenty of zero percent finance deals to lure customers could be adding up to 4 percentage points of discount to the 7 percent discount typically offered to a dealer on a mass-market car.
Car makers are also hoping to persuade drivers that they will save money in the long term by buying a new, more fuel-efficient engine.
Fuel costs are a hot topic in Britain where tax rises and higher oil prices pushed the average cost of a tank of petrol to about £90 (R1 200) last year from £70 two years earlier. Newer engines can cut as much as £15 off a fill-up. – Reuters