David Prosser: How long can car sales stay in the fast lane?

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The Independent Online

Outlook At last, some good news on the economy, where all the data of the past few days has been fuelling double dip fears. The SMMT's figures for car sales during June were unexpectedly buoyant, with better fleet sales more than compensating for the fall-off in trade from individual drivers we have seen since the end of scrappage.

The question, however, is how long that positive message will endure. The motor industry itself expects to see sales slipping back during the second half of the year – not least because business confidence surveys suggest optimism is now faltering, so fleet spending is likely to fall back once again.

Then, in the new year, the industry will have to begin contending with the higher rate of VAT, which could be a real issue. When Alistair Darling temporarily cut VAT in 2009, there was a great deal of sniping about the effectiveness of the gesture in terms of boosting consumer spending.

But on big ticket items such as motor cars, the savings were quite noticeable to customers and the VAT cut prompted a decent sales uplift from day one. There is no reason to think the reverse won't be true when VAT rises to 20 per cent on 4 January 2011.

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