Blessed are the car makers: But what’s driving the British motoring miracle?

PPI mis-selling claims fuel boom in consumer spending as more than 500 new cars driven off forecourts every hour in September

Maureen Clayton is no wannabe Jeremy Clarkson. “It is a long time since I had a new car. I have been running round in an old banger but I took on a new role and I couldn’t have a car letting me down. I surprised myself when I came I came away with a new one,” she admitted.

The teaching assistant from Bradford, West Yorkshire traded in her 14-year-old Citroen Saxo for a brand new Ford Fiesta – Britain’s biggest selling car.  But although splashing out on a new set of wheels might have taken her by a little aback, it was a retail decision that was proving remarkably commonplace among UK consumers.

For whilst the British economy has been crunching slowly through the low gears it has fallen to the automotive sector to lead the way towards something like the fast lane of recovery.

Last month 403,136 new cars were sold in the UK – up 12.1 per cent on the same time last year. It means more than 500 new cars were driven off British forecourts every hour in September.

Figures from the Society of Motor Manufacturers and Traders (SMMT) showed more new cars were sold than in any month since March 2008 - six months before the collapse of Lehman Brothers sent the financial system spinning into crisis.

Private sales of the September 63 plate – as opposed to those of fleet vehicles - were up 16.7 per cent on last autumn, a 19 successive monthly increase. The numbers suggest that people have more money in their pockets and – crucially - are willing to spend it.

Ms Clayton said she was convinced by the affordability of her new, nautical blue Fiesta. Monthly repayments are just £160 and because it is so low in CO2 emissions, road tax is £30 a year. In many ways motoring has never been so affordable.

But there are other factors at play, explained Mike Hawes, SMMT chief executive.

Alongside competitive finance deals, the general public has been receiving significant injections of cash as a result of the mis-selling of payment protection insurance (PPI) which has been main-lining between £400m- £500m a month into household coffers through compensation schemes.

According to the Financial Conduct Authority since January 2011 some £11.5bn has been repaid to customers who were persuaded to buy unnecessary policies.

“Overall the picture is very bright,” said Mr Hawes who is predicting sales on target for 2.2m vehicles this year. “We know that a number of our customers have been benefitting from PPI mis-selling claims. They have had a cheque in the post – a sizeable cheque for some people – and an investment in a new car can obviously be beneficial over time and that has been driving sales,” he added.

Danny Sacco has been in the motor industry for 37 years, the last 24 of which he has been selling Mazdas from his showroom in Bath. Last month’s turnover was 121 per cent up on this time last year.  “It has been difficult but I think there is light at the end of the tunnel and it is not a car coming the other way,” he said. “Whereas six month ago it was a case with customers of saying `let me go away and think about it’ there has been a definite change in their minds. It is now `this is what I want and this is how I am going to get it,’” he said.

In September he sold three times the normal number of MX-5s, the sporty, soft-top roadster that is particularly popular with young professionals.

This might not be surprising, explained Professor Peter Wells of Cardiff Business School’s Centre for Automotive Industry Research. He said sales of cars were linked in complex ways to other sectors of the economy.

“Younger people and married couples not able to get into the housing market have money and are looking to spend it because savings are not generating very high returns. They have spending power because they are not locked into a mortgage and there is a bit more disposable income,” he said.

It is not difficult to see why politicians and economists put so much emphasis on what the late Baroness Thatcher described as the Great Car Economy. According to the SMMT the automotive industry turns over £59bn in the UK each year and supports 700,000 jobs.

And the latest figures reveal that UK demand is starkly outpacing mainland Europe. In Germany, Europe’s largest market, car sales are six per cent down on this time last year. Ratings agency Moody’s has predicted a five per cent trough in Europe this year with no sign of sales returning to pre-credit crunch levels.

By contrast the Chinese market is expected to continue strongly with worldwide car sale growth is set to rise 4.8 per cent next year.

But here is another side to the equation: manufacturing. Only one in seven of the new cars bought last month was made in Britain which continues to run a net balance of trade deficit in the automotive industry even though four out of every five vehicles manufactured in the UK is sent for export.

Of the 10 most popular marques only the Vauxhall Astra, manufactured in Ellsemere Port and the Nissan Qashqai produced on the pioneering site in Sunderland, can claim to be made in Britain.

Ford meanwhile ended a century of vehicle production in the UK in the summer when it closed its Ford Transit factory in Southampton. Its top brands are made in Germany, Spain and Belarus.

But whereas rivals such as France’s Peugeot and Renault and Italy’s Fiat which have found their fortunes tied to the ailing Eurozone economies, prestige British-made marks Jaguar Land Rover and Aston Martin are popular among the Asian new rich.

Meanwhile there are some special features that have driven growth in the market. In real terms a new car costs the same as did in the 1980s despite being infinitely safer, more comfortable and efficient, not to mention the fact that even affordable models are bristling with must-have electronic gadgets.

Labour’s successful vehicle scrappage scheme which allowed motorists to trade in their 10-year-old gas guzzler for a brand new model whilst pocketing a £1,000 grant from the Government and a similar discount from the manufacturer, also lured many back into the new car market.

Still, there are potential roadblocks on the horizon with some starting to ponder whether perhaps a car is really the ultimate desirable consumer durable it once was, warned Professor Wells.

“The question is beginning to be asked not just in this country but even in North America which is the heartland of automotive culture. Young people are not necessarily taking up licences as much as they used to whilst there has been stagnation in the number of miles being driven. The role of the car as a signifier of social status is beginning to break down and be eroded,” he said.

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