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Bank rates dent 54-plate

Retail demand for new cars could dip next month – the new 54-plate change – following last week’s decision by the Bank of England to raise interest rates another quarter of one per cent, to 4.75%.

However, the true extent of the problem is likely to be hidden from public view as carmakers incentivise their retailers to push cars into the market in an attempt to maintain volumes. These enforced registrations mean cheap deals for consumers and ensure forecourts of the nearly-new car supermarkets remain well stocked.

Coupled with similar increases this year – it’s the fifth rise since November 2003 – this latest move is intended to slow down the UK’s economy. The impact will be exacerbated by rising fuel prices, although the oil producers’ cartel OPEC last week performed a U-turn and said its members would now free up capacity which should bring down filling station prices.

This year oil prices have risen by a third, with an inevitable knock-on effect on fuel prices. It’s also persuading more people to consider diesel, as sales reached record levels in July (32.5% of the market).

Retailers are bracing themselves for the slowdown. Camden Motors chief executive Paul Dunkley says: “Manufacturers will be incentivising dealers to sell cars next month.

There will be lots of cheap deals available for retailers, which is good in the short term but bad in the long term because of the affect on residual values. Customers will not necessarily benefit.”

Both the leading industry trade associations were talking up the market, however.

The Society of Motor Manufacturers and Traders, despite downgrading its forecasts from 2.6m to 2.58m units for the full year, believes September new car sales volumes should match plate change levels in 2003, close to 440,000 units.

“Interest rate rises take about a year to take affect. We are confident the market will stick at levels similar to last year,” says a spokesman for the SMMT. “And as long as the economy stays strong, oil or fuel price rises will have little effect.”

RMI chief executive Matthew Carrington adds: “As long as sales incentives and value for money prevail in the marketplace, a quarter per cent interest rate increase will not have any impact on car sales.

“Rates would need to go significantly over five per cent, and even then the effect would be negligible.”

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