Car sales accelerate off a cliff

The motor trade is fast overtaking banks and housing as the biggest victim of the downturn. The Society of Motor Manufacturers and Traders (SMMT) yesterday revealed that new car sales to private individuals slumped by 45 per cent in November, compared with the same month last year – the steepest fall since June 1980.

The rate of decline has steadily accelerated over the past seven months. In November no carmaker recorded an increase in sales on the year before; those in the SUV and luxury end of the market tended to come off worst. Taking into account slightly better demand from fleet and business users, car sales overall were down 37 per cent on the same month last year, and 11 per cent lower in the year to date.

The SMMT's figures seem to confirm anecdotal and survey evidence that the economy has "fallen off a cliff" in the past month to six weeks, and that the VAT cut may have been a case of "too little, too late". Paul Everitt, SMMT chief executive, commented: "November has been another difficult month for the motor industry and while some consumers may have delayed their purchases to take advantage of the recent VAT reductions, overall demand continues to fall. Urgent action is required to ease access to credit and finance, to support consumers and meet the cash-flow needs of the industry."

As the ultimate "big-ticket" item, car purchase is often easily postponed by consumers worried about losing their jobs, and who, in any case, are finding it more difficult to raise a bank loan to buy a car; hence the crisis. Recently the SMMT wrote to the Chancellor, Alistair Darling, and held talks with Lord Mandelson, the Business Secretary, to ask for support.

According to the SMMT, they are conducting an "ongoing dialogue" with ministers, and are "working towards a solution" to their problems. Car manufacturing accounts for 1 to 2 per cent of the UK's GDP. About 850,000 people depend on car making and the wider components, retail and repair trade, for their livelihood.

In the United States, pressure has been building on the White House and on President-elect Barack Obama to make emergency loans available to the big three – General Motors, Ford and Chrysler. Governments in France and Sweden and the German state administration in Hesse have spoken openly about direct state aid for their car industries. Whether such schemes will be approved by the EU commissioner is a moot point. President Nicolas Sarkozy of France yesterday called for a more flexible approach from the Commission: "We will have to examine the issue of European competition policy, which does not enable the European economy to compete on a level playing field with the rest of the world."

Although some 80 per cent of UK new car sales are accounted for by imports, the fall in domestic sales is hardly encouraging to manufacturers going on to short-time working, and, in some cases, contemplating job cuts.

Even the steep fall in sterling has not boosted exports much – so feeble is overseas demand. Against the same period in 2007, car sales are down by 50 per cent in Spain, 37 per cent in the US, 30 per cent in Italy, 18 per cent in Germany and 14 per cent in France. In Japan they are at their lowest since 1969.

In the UK major players such as Honda, Nissan, Ford, Jaguar and Land Rover are currently retrenching, as are the prestige makes such as Aston Martin (a decline of 72 per cent) and Bentley (32 per cent). The effects of plummeting City bonuses on these and the likes of Porsche (down 57 per cent) and BMW (off by 37 per cent) is plain to see.

However, the collapse in consumer confidence has spread much wider than the City, and fears are growing that the authorities can do little to rebuild it in the short term, said Howard Archer, UK economist at Global Insight. "Sharply deteriorating car sales provide further clear evidence that consumers are now sharply cutting back on their spending," he said.