Car firms raise sales target after record year

Business is booming on the forecourts but losses are mounting among UK manufacturers
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The Independent Online

Motor industry leaders yesterday raised their forecast for the number of new cars that will be sold in the coming 12 months after a record end to a record year in 2001.

Motor industry leaders yesterday raised their forecast for the number of new cars that will be sold in the coming 12 months after a record end to a record year in 2001.

The Society of Motor Manufacturers and Traders said it expected the market to reach 2.3 million units this year – an increase of almost 100,000 on its previous forecast made only four weeks ago.

The move came as the SMMT confirmed that new car sales reached an all-time high of almost 2.46 million last year, helped on by a 17 per cent surge in sales in December, traditionally one of the quietest months of the year.

The total of 2,458,769 registrations beat the previous record set in 1989 by nearly 158,000 and was 11 per cent higher than the figure for 2000. Christopher Macgowan, the chief executive of the SMMT, said: "Many commentators have waited for the market to cool but I am delighted this hasn't happened." He described the bumper sales total for December as the "icing on the cake".

There has not been much for the UK car manufacturing industry to celebrate, however. The boom in sales is not being reflected in any improvement in the fortunes of most of the UK's nine biggest car producers. They are set to clock up another year of heavy losses after collectively plunging £1.7bn into the red in 2000-01.

Last year's record car market was fuelled by a cocktail of lower prices, cheap finance and new models which attracted retail customers in unprecedented numbers. Sales to private buyers were up by 22 per cent or 220,000 last year as they drove largely imported cars off the forecourts in record numbers. Of the top 10 UK sellers last year, only one, the Vauxhall Astra, is made in this country.

But the same factors which have driven the market higher also help explain the escalating trading losses suffered by UK manufacturers. Burdened with surplus capacity, they have been forced to chase customers with cut-price offers and zero per cent finance deals in order to fill their under-utilised car plants.

Ford and Vauxhall have both grasped the nettle of excess capacity by closing their Dagenham and Luton car plants but this has been at the cost of heavy one-off charges. Losses have been further exacerbated by the strength of sterling and the dependence of the UK car industry, particularly the three Japanese manufacturers Nissan, Toyota and Honda, on exports.

John Lawson, automotive analyst at Schroder Salomon Smith Barney, believes car sales will fall this year both in the UK and on the Continent as a little more sanity returns to the market. He predicts a 4 per cent decline in overall European sales after last year's 1 per cent rise. "Consumers feel they are getting a better deal on prices than they were 18 months ago and in the final quarter of last year there was evidence that manufacturers and their dealer networks were incentivising the market," Mr Lawson says.

"But I do not think that will be repeated this year. You also have to bear in mind that there is likely to be slower growth in consumer income, higher unemployment and higher interest rates."

Mr Lawson also detects little evidence that the fortunes of the UK car manufacturing industry are about to improve. Aside from the strong pound, he points out that Honda, Nissan and Toyota are also disadvantaged by higher distribution and manufacturing costs and uninspired model line-ups.

As for the long-established car producers, he says that the UK plays host to "two of the most challenged manufacturers in the industry" in the shape of General Motors and Ford. Both companies are burdened by excess capacity, poor product mix and sagging US domestic demand. Their response has been to stimulate the market so aggressively that the more metal they shift, the heavier their losses.

So who are the winners in this mixed picture of runaway sales success combined with worsening financial misery? As far as Europe is concerned, two manufacturers stand out – Peugeot-Citroën of France and BMW of Germany. The French car maker is expected to increase net profits to a record €1.5bn (£932m) in the current financial year. In 2001 Peugeot increased worldwide sales by 11 per cent to 3.134 million and this year it is forecasting a further rise in sales to 3.25 million helped by the launch of new models.

As for BMW, it has already promised that net profits for last year will beat the record €1.02bn achieved in 2000. Sales last year meanwhile broke through 900,000 for the first time.

Peugeot is proving one of the few companies capable of increasing its UK market share at the same time as lifting the profitability of its UK manufacturing operations. In 2000-01, Peugeot doubled UK profits to £104m. Last year, its UK sales rose 9 per cent.

BMW's financial success owes a lot to a strong performance in the US market where models such as the X5 have helped offset a flat domestic market in Germany.

But the UK is also proving a good place for BMW to both sell and make cars. Sales were up 20 per cent last year, the venerable 3 series made its way into the top 10 sellers list in December and the launch of the new Mini from Oxford has been acclaimed as both a manufacturing and a sales success.

Who would have thought it when barely two years ago BMW's ownership of Rover so nearly brought the company crashing down? It only goes to show there is hope yet for Britain's embattled car industry.