New cars sales in UK are in freefall as figures slump to early 1990s levels, writes Daniel Attwood
THE BELEAGUERED British motor industry will today get a much-needed shot in the arm from the Labour government as it attempts to boost demand for new cars and protect hundreds of thousands of British jobs.
Peter Mandelson, secretary of state for business, enterprise and regulatory reform, will discuss the government’s aid package in a crisis meeting today between government and motor industry representatives.
He hopes to turn Britain into a world centre for the development and manufacture of low-carbon vehicles. To achieve this, the equivalent of £2.3 billion (€2.47 billion) in loan guarantees and investment grants has been guaranteed as well as £100 million (€107.5 million) to retrain auto workers.“This is no bail out,” said Mandelson. “There are no blank cheques and no operating subsidies.”
Mandelson also said he wants to improve access to credit for the finance arms of that car manufacturers to allow them to offer zero per cent car loans to new-car buyers.
The help is desperately needed after it became clear the industry, which employs 930,000 people and adds £10 billion (€10.75 billion) to the UK economy, is in dire straits. Sales of new cars are in freefall – they fell 21 per cent last month, with 270,000 fewer new cars sold over the course of 2008.
And the situation is set to get much worse, with some manufacturers preparing for this year’s total market to be down by half a million cars compared to 2008.
The industry trade body, the Society of Motor Manufacturers and Traders (SMMT), is more optimistic saying closer to 1.72 million new cars will be sold, which is still down 19.3 per cent on 2008 and will be the lowest since 1992.
SMMT chief executive Paul Everitt welcomed the government’s aid, saying it was an important announcement that “recognises the strategic contribution” of the motor industry.
“The UK motor industry is productive and globally competitive with a long-term future at the heart of the low-carbon agenda,” he said.
Dozens of British dealers have already fallen by the wayside, and it is predicted that by the end of this year there will be over 1,000 fewer franchised car dealers there.
Nigel Ruddock, national head of Grant Thornton automotive services, said he predicts the network of 5,200 franchised dealers could shrink to between 3,500 and 4,000.
Some carmakers are reacting by reducing targets to relieve pressure on their dealers.
“However, other manufacturers have not yet taken into account the changes in consumer demand. Their targets are now at an unrealistic level,” warned Sue Robinson, director of the Retail Motor Industry’s National Franchised Dealers Association.
As a result, she said dealers are “reviewing their businesses, and restructuring in such a way so that they are well-placed to survive the current downturn”.
In other words, franchised dealers have begun concentrating on used- rather than new-car sales, as there is a slight upturn in demand for used cars.
This will be unwelcome news for carmakers lumbered with tens of thousands of unsold new cars.
Most of Britain’s car manufacturers plants have already slashed production by extending their Christmas breaks.Honda, Vauxhall, Jaguar, Land Rover, Mini, Bentley and Nissan have all cut production, with the loss of thousands of jobs.
When announcing 1,200 job losses earlier this month at its northern England manufacturing plant, Nissan’s senior vice-president for manufacturing in Europe, Trevor Mann, said: “Like all manufacturers, our Sunderland plant is currently operating in extraordinary circumstances not of our making. It is essential we take the right action now.”
With factories idle, the number of new cars built in Britain fell by almost 50 per cent last month and production will continue to decline.
“Indications are that vehicle production could be down anywhere between 10 and 15 per cent on 2008. With the current economic climate, it is difficult to judge but it is likely to be back to where we were in early 1990s,” said an SMMT spokesman.“All main auto manufacturing bases have had to take some kind of measure to throttle back production to prevent stock-piling.”
Honda’s Swindon is a prime example: it will not begin full production again until June, cutting its 2009 production target by almost 40,000 vehicles.
The plant makes Civics and CRVs for 60 foreign markets including the US and much of eastern Europe, where demand has almost dried up.
Honda is now faced with a massive surplus of unsold cars which it is now stockpiling at Southampton docks.
“Because of the sudden change in the financial climate, Honda has a surplus of cars built at Swindon that need to be temporarily stored. We expect the number of cars stored at Southampton to approach 10,000 over the coming months,” said a spokesman. “All of these are destined for Russia and eastern Europe.”
Honda is not alone, UK-based carmakers export 75 per cent of the cars they manufacture and have been hit hard by the worldwide slump in demand, despite the fall in sterling’s value working in their favour.
“The global economic downturn, precipitated by the crisis in the international banking and finance sector, created unprecedented challenges for the UK automotive industry,” said SMMT’s Paul Everitt.
“This will be another difficult year with new vehicle registrations and production significantly reduced. The extraordinary circumstances we currently face mean that government support will be required.”
While carmakers and their dealers are the obvious victims, their troubles are now bringing down their suppliers.
On Monday Corus, which supplies steel to Britain’s carmakers, said it was cutting its UK workforce by 2,000 employees as demand had fallen.
The situation is now close to critical and the government’s aid package is seen by many as the only option left to save the industry.