Full speed ahead for Britain’s motor manufacturers

While the rest of Europe is misfiring amid the eurozone crisis, our motor manufacturers are getting into top gear to meet growing demand

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The Independent Online

Car sales on the continent may be stuck in reverse, but on this side of the Channel our love affair with the automobile is on the up.

New figures out yesterday show the EU is operating a two-speed vehicle economy, with Britain revealed as the only major market to grow last month.

The number of new cars sold in the UK accelerated by 11.3 per cent to 149,191 in November, compared to a year earlier, against a backdrop of a 10.3 per cent slowdown across Europe, according to ACEA, the European Automobile Manufacturers' Association.

Not only did sales growth in the UK far outstrip Europe as a whole, but it even eclipsed Germany, which recorded a 3.5 per cent decline last month, even if it did buy two-thirds more cars than Britain – with 269,144 new vehicles registered.

Sales in lighter-weight industrial powers fell much further still, with Spain and Italy both down by just over a fifth, Portugal by a quarter and Greece by 47.2 per cent. Even France saw its sales slide by 19.2 per cent last month, according to ACEA.

"The UK is a bright spot, but that is largely because the rest of Europe is struggling so much and because there is a huge amount of pent-up demand after several years of much-reduced car sales. Cars do wear out eventually," said IHS Automotive analyst Colin Couchman.

UK car sales were 5.4 per cent higher in the first 11 months of the year, according to ACEA – compared to a 7.6 per cent decrease across Europe – and are set to hit 2.04 million by the end of 2012.

The Ford Fiesta has been the biggest-selling car in the UK this year, followed by the Vauxhall Corsa and the Ford Focus, while Jaguar Land Rover has recorded a 20 per cent jump in UK sales to a new record for the country in the first 11 months of 2012.

Even with this relative burst of activity, UK sales this year will still be about 15 per cent short of the 2.4m they hit in 2007 before the financial crisis decimated demand. However, its sales increase so far this year still looks impressive when compared to the decline in Europe.

"Europe probably didn't see such an immediate dip as the UK, but they are going into it now, so they don't have the benefit of the pent-up demand. The eurozone debt crisis also means that their economic circumstances are more difficult than ours," said Paul Everitt, chief executive of the UK's Society of Motor Manufacturers and Traders (SMMT), who also believes that the UK's economic loss has, to a degree, become its car market's gain.

"Where else are you going to put the money in the UK? Houses aren't selling and interest rates are very low, which makes saving quite unattractive. And the stock market has flatlined," he said.

He argues that rising pump prices have provided another "trigger" because newer models are 10-15 per cent more fuel efficient than older cars, increasing the business case for buying.

The UK car market may have been given an additional shot in the arm by payouts to victims of the payment protection insurance (PPI) scandal, who have received more than £7bn in the past two years, according to SMMT.

The divergence between the UK and the rest of Europe is also apparent in car manufacturing.

Opel became the latest victim of weak European demand this week, as its owner, General Motors, said it would end car production at one plant in Germany in 2016.

By contrast, money has been pouring into the UK car market, which has received an unprecedented £6bn of investment in the past two years.

British car production rose by 9.2 per cent in the year to the end of November, exporting 82 per cent of the vehicles it made, according to the latest SMMT figures, published on Thursday.

The jump in UK production continues a trend which has seen the country's ailing industry rebounding, even if the vast majority of the carmakers are now owned by overseas operators.

The SMMT expects the UK to produce 1.5 million cars this year, up from 1.34 million in 2001, but still well below the peak of 1.92 million in 1972. However, Mr Everitt is confident the UK can quickly set a new record of 2 million by 2015, as the recent spate of investment bears fruit. Britain will have its work cut out to achieve this level of production, but it will be helped by the buoyant US car market, where sales have jumped 13.9 per cent so far this year, on the back of a multi-billion dollar industry bailout.

The US is Britain's third-biggest export market, accounting for 7.5 per cent of its overseas sales. Europe is the biggest market, followed by Russia in second place and China fourth.

The divergence in fortunes between the UK and the rest of Europe is likely to continue next year, with SMMT forecasting that car sales will be "broadly flat" compared to this year with modest growth in 2014, while Europe as a whole will be flat "at best", with many of its markets continuing to shrink.

As a spokesman for ACEA put it: "Consumer confidence is stronger in the UK than in Europe. It has not been hit as hard as a lot of other countries."

As if to underline his point about the fragility of the eurozone economy, new data out yesterday showed its recession has deepened in the fourth quarter after the block's private sector contracted for the 11th-straight month in December. But with the UK facing the prospect of a triple-dip recession, we can't afford to be complacent.