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Industry warned to 'batten down the hatches'

2012 is likely to be a reality check for the UK car market which had been lulled into a false sense of solvency by the scrappage scheme and fleet sales.

The market in 2010 was artificially underpinned by the scheme leading to new car registrations that year of nearly two million units, the same as in 2009. The market in 2011, at 1.94m belied the economic characteristics of low growth, falling real income and lack of consumer confidence would suggest.

The comments were made in a report to guests at the IMI Dinner this week by motor industry expert Professor Garel Rhys. They have been strongly refuted by the Society of Motor Manufacturers and Traders.

Prof Rhys said: “The apparent market stability given the dire economic conditions was a mirage.

“Part of the unexpectedly positive performance was the company car sector deciding that they could not extend the replacement cycle any further and returned to the market. This was a once and for all boost that will not be repeated in 2012.”

More fundamentally, Prof Rhys said, vehicle manufacturers spent huge amounts of money to boost the market “by various measures which all added up in one way or another to price cuts”.

“This cannot go on and in 2012 the adverse economic conditions will seriously undermine the UK car market.”

He said without the return of fleet to the market last year new car registrations would have done well to reach 1.85m.

“It is likely that 2012 will be a reality check with car sales struggling to reach 1.8m. The industry needs to batten down the hatches.”

But Paul Everitt, SMMT chief executive, called the statements "overly negative".

"We stand by our 2012 forecast of a flat market, compared to last year, of 1.93m units," he said.

"Economic conditions are making this a tough year, but the year has started reasonably well. While the whole market was down in January and February, retail demand was up 2% year-on-year. Early reports on March are also positive: advance order take was good and interest has been sustained through the month."

Consumer positivity, he said, is based on new product launches and the focus on higher fuel efficiency and use of popular vehicle technologies.

He also dismissed the focussed placed on pre-registrations artificially inflating sales totals: "Dealers accept the bonuses that this activity attracts."

> Prof Rhys is an IMI vice president and president of the Centre for Automotive Industry Research

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