Five ways to rev up the car market

Via Yahoo Finance

Coronavirus is expected to deal a heavy blow to car sales in the UK this year. 

Just six months ago the Society of Motor Manufacturers and Traders predicted that 2.25m new cars would be registered in 2020, a small drop on the 2.31m of the previous year as worries about Brexit and wider economic uncertainty weighed.

Covid-19 changed all that and prompted the trade body to slashed its forecast to just 1.68m new car registrations this year – the lowest level since 1992.

That’s a figure even insiders concede is conservative and it’s easy to see why. With showrooms closed last for all of April, a paltry 4,321 cars were registered – down 97.3pc on the same month a year ago.

Online sales and easing of lockdown restrictions mean May’s figures released on Thursday are likely to be a little better, but the expected 85pc plunge will just highlight how desperate a situation the industry is in.

Britain’s automotive sector is a key part of the economy, supporting almost a million jobs and some regions such as the West Midlands heavily dependent on it.

Almost 170,000 people are employed directly in making vehicles and 823,000 across the wider automotive industry, with the £82bn a year turnover sector accounting for 30 manufacturers large and small that are serviced by 2,500 companies producing components for them. 

With so many jobs dependent and such a large part of the economy depending on the car industry, here are five things that will help to boost sales.

1. Get Brexit done

For years before Covid-19 emerged, car makers both in Britain and around the world listed the UK leaving the European Union as a huge worry

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Blowing out of the trading bloc without a free trade deal is likely to mean 10pc tariffs under World Trade Organisation rules, pushing up the cost of cars

About 80pc of the 1.3m cars made in the UK last year were exported, mostly to Europe, with an even larger amount travelling the other way. 

Similarly, car components are widely travelled before being assembled, often crossing borders several times as they are built up into sub-assemblies before being put together on production lines.

If Britain were to leave without a free trade deal, these parts could face face levies, not to mention delays as customs and border controls were reintroduced.

This would upset the automotive industry’s finely balanced production system that depends on parts arriving at factories often just hours before being put together into completed cars.

Achieving a free trade deal to avoid these problems would avoid price rises that could deter purchases.

2. Stimulus scheme

The car industry wants government incentives to encourage motorists to buy a new car, emulating the success of the post-financial crisis scrappage scheme.

This “cash for clunkers” project a decade ago is credited with reviving the UK’s automotive sector and driving more than 300,000 car sales.

Under the scheme manufacturers knocked £1,000 off the asking price of a new car and the Government kicked in the same amount as long as one at least a decade old was traded in and junked, taking polluting old bangers off the roads while boosting the industry.

The SMMT has written to ministers asking them to consider similar measures, potentially with £1.5bn of funding going into such a programme, although the amount is understood to be “a marker” to give an idea of the level of support required.

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If it were to go ahead at such a level, to make up the almost 600,000 sales decline forecast between the current prediction at the start of the year, this would equate to £2,500 off the price of a new car.

Other ideas thought to be floated around the scheme are bigger discounts on cars built in the UK, although this could fall foul of trade rules, and manufacturers matching discounts.

Other countries, such as France, have already unveiled similar schemes

3. Spark up the sector

The Government plans to ban the sale of non-electric cars by 2035 but the higher cost of these vehicles is a barrier to greater public adoption. Offering bigger incentives to buy an electric rather than conventional car could help boost sales.

This does come with a worry for the UK’s car industry, though, given that the only mainstream all-electric car built in the UK is the Nissan Leaf.

The SMMT is clear that it prefers any stimulus to be “platform agnostic” – not favouring one particular powertrain.

Electric car revolution | Read more

4. Smooth the path and juice it up

Britain’s roads are in a dreadful state. Despite the Budget’s promise of a £2.5bn “pothole” fund to patch up our highways, many drivers will know the inconvenience and cost of a blown tyre or damaged suspension because of the roads’ shoddy state.

Better road repairs might encourage people on to them, as well as delivering an infrastructure spending boost to the economy. 

A further uplift could also come from spending to create the charging system needed to support electric vehicles.  

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5. End the war on motorists

For years drivers have complained they are easy targets to be milked for revenue, such as through taxes, congestion charges, fines and parking restrictions. 

But with the Government encouraging people to avoid public transport and more people without a car saying they are looking to buy one, making motorists less likely to feel they have a bulls-eye on their back could further encourage them to buy a vehicle.