New car sales figures hint at impact of VAT cut

Early signs that the reduction in VAT may be having a beneficial effect on the sales of "big-ticket" items such as new cars came yesterday with the latest data from the Society of Motor Manufacturers and Traders (SMMT).

December was another bad month for the car trade, with sales down 21.2 per cent on last year, including business and fleet buyers. Sales to private customers, most affected by the VAT move, were 23.7 per cent lower. However, that was a marked improvement on November's catastrophic 45.1 per cent drop, and compares well with October's fall of 28.8 per cent.

The SMMT believes some consumers deferred buying a new car between the Chancellor's pre-Budget report announcement on 24 November and the implementation of the cut from 17.5 to 15 per cent on 1 December. However, they say the move had an added impact, over and above that temporary depression of demand in November. John Proctor, a spokesman for the SMMT, said the cut in VAT had been "helpful".

Common sense suggests a reduction in the price of items such as cars, where the effective 2.1 per cent reduction in retail prices runs into many hundreds or thousands of pounds, would be greater than on retail sales more generally. The effect may accelerate during the year; as the cut in VAT ends on 31 December, some prospective 2010 sales may be brought forward as 2009 wears on.

New registrations in 2008 stood at 2.13 million, 11.2 per cent down on the previous year and the lowest since 1996. Only sales of very small cars accelerated (up by 39.8 per cent in December); luxury saloons were hardest hit (down 45.6 per cent). Among the brands, notable winners were Smart (+19 per cent), Volvo (+11 per cent), Jaguar (+8.7 per cent) and Kia (+6.6 per cent). Losers include Land Rover (-30 per cent).