Figures released by the Society of Motoring Manufactures and Traders show new-car registrations in August in freefall, with sales down nearly 20 per cent over the month, and high-end polluting manufacturers suffering more than most.
Year-to-date figures show sales down only -3.75 per cent on 2007, but the size of the drop for August will cause consternation among manufacturers and dealers. All in all 63,225 vehicle were sold in August 2008 - a drop of 18.58 per cent on the same month in 2007.
Winners and losers
The figures are likely to have all manufacturers staring at balance sheets in consternation, but among the heaviest losers are sports car, luxury and SUV manufacturers.
Alfa Romeo, Aston Martin, Bentley, BMW, Cadillac, Jeep, Jaguar, Lexus, Mercedes-Benz, Porsche and Saab also suffered badly in August but even volume manufactures such as Chrysler, Honda, MINI, Mitsubishi, Peugeot and Proton saw sales fall over 30 per cent between August 07 and August 08.
Although it only sold 260 models in August 2008, smart increased sales by 712 per cent on the same period last year, indicating that car buyers are responding to market conditions and investing in smaller, more efficient models.
Audi, Chevrolet, Subaru and Volvo were also among the few manufactures to increase sales over August 2008, with Volvo's sales up by nearly 30 per cent. Lotus posted a massive 292 per cent increase in August, with year-to-date sales also up by over ten per cent.
Cadillac, Chevrolet, Daihatsu, Dodge, Jaguar, Kia, Nissan, smart and Volvo were the only manufacturers to see any significant growth over 2008.
Figures from Askaprice.com show enquiries on high-end manufacturers such as Land Rover declining steeply throughout the year. In January Land Rover enquiries formed almost four per cent of Askaprice.com's business. By July that figure had shrunk to 1.6 per cent.
Commercials
Vans sales are down 24.7% for August and down 0.8% to 329,092 for the rolling year.
“August is traditionally a month for low registrations. That, and the economic situation which is slowing spending, means a big drop in van figures," said Paul Everitt, SMMT chief executive.
“In the short term van registrations will continue to struggle, though the truck sector is holding total CV figures close to the three-year average. In the longer term we expect an overall and marked downward trend."
Used cars
Used cars are losing value at a faster rate than during the height of the last recession in the early 1990s, according to EurotaxGlass’s, publisher of Glass’s Guide.
Currently a typical three-year-old car retains around 38 per cent of its list price – two per cent lower than in 1992 when bank base rates were at 15 per cent and inflation was approaching 10 per cent.
EurotaxGlass's said a major reason for today’s weaker used values is that depreciation is not being countered by inflationary price rises.
“Between 1991 and 1992 manufacturers increased list prices by around 8 per cent, and this often helped to ‘drag up’ used car prices," explains Adrian Rushmore, Managing Editor at EurotaxGlass’s.
"By contrast, during the past year new car list prices have increased by little more than 2 per cent, and the general absence of inflationary ‘relief’ means that used car values have been more susceptible to pronounced month-on-month falls as demand has declined."
“During the last recession the economy was experiencing a painful readjustment following a consumer boom. New car sales suffered a calamitous fall of over 30 per cent between 1989 and 1992, and used car demand was also in the doldrums.
"Today the market is experiencing hardship but nothing quite as threatening, with registrations and used car sales falling in a far more controlled fashion."
“This time around, recovery will depend on another mix of factors – but it is already clear that an improvement is unlikely to happen any time soon."
Response
The RMI National Franchised Dealers Association (NFDA) has called for a reduction in interest rates to stimulate the economy, in response to the Bank of England's announcement that interest rates will remain at five per cent.
"Continuing economic pressure on households has made consumers wary of making big purchases, so by deciding against an interest rate reduction the Bank of England has missed an opportunity to kick-start the economy," said Sue Robinson, Director of the (NFDA).
"The cost of borrowing remains high, while household costs continue to increase. The Bank of England has the ability to immediately boost the economy by reducing the interest rate, and would be wise to do so as soon as possible.
"A reduction in interest rates would help householders struggling with mortgage debt and other increasing household costs. Hopefully this would increase disposable income that could then help boost the wider economy."
Why is this happening?
August is traditionally the slowest month for car sales, due to the traditional drop-off before the September registration change, but even so the extent of the slump in the car-buying sector is alarming, with new cars, used vehicles and commercials suffering badly over August.
Higher oil prices and the prospect of higher road taxes are putting car buyers off higher-end luxury vehicles such as SUVs, performance cars and luxury models, while the retrospective VED on models registered since 2001 has hit used values and sales.
Leasing has suffered as residual values continue to fall - again the high-end models are worst hit.
Most of all prevailing economic conditions are likely to be the defining factor in the car industry's current woes. Economies across Europe are sliding towards recession, and the credit crunch has hit the UK hard, meaning car buyers are more reluctant and hard-pressed to find credit for large purchases.
Several manufactures in the UK have slowed production to meet demand, with more likely to follow, as the public reconsiders high-ticket purchases such as cars.