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New car market growth may ease in Q2 as carmakers have less cash in the car

UK national sales companies ordering cars priced in euros may have to ease off the throttle after the end of March due to the pressure on sterling.

And used car experts at CAP see this continuing in light of the 2013 Budget this week. Chancellor George Osborne’s downgrading of Britain’s economic growth forecast and call to “keep interest rates lower, for longer” are expected to add to pressure on sterling in the medium term, potentially making new car business less profitable for most manufacturers.

For example, at the start of January when a pound was worth 1.23 euros, a 12,000 euro car cost a national sales company £9,756. Today, with a drop to 1.18 euros per pound the same car costs £10,169, leaving the NSC with £413 less per unit to drive the market.

Last summer when sterling/euro peaked at 1:1.287 the car would have cost just £9,324 to the NSC - the exchange rate was a significant factor behind the rapid growth in private registrations since Q3 2012.

Pressure on exchange rates, coupled with Osborne’s measures designed to put more money into consumers’ pockets, has led to CAP describing the Budget as “neutral” in terms of its impact on the UK automotive sector.

It means CAP’s senior editor for forecasting, Dylan Setterfield, has not adjusted his view of residual value prospects over the next three years.

The business is therefore retaining its already published forecasts of a short-term reduction in values for 2013 and further limited price falls in 2014/15.

Setterfield’s view is based on forecast assumptions of increased new car registrations, a reducing risk of high volume forced registrations and fluctuations in supply, coupled with steady demand.

Dylan Setterfield said: “For a while last year it seemed there was a real risk of the slump in registrations in Europe forcing manufacturers to drive supply into the relatively strong UK. Experience has shown us that when registrations approach levels we saw in 2005 to 2007, then residual values are severely weakened by eventual oversupply.

“The prospects of that being repeated have been receding since Sterling began weakening in the 2nd half of 2012. Sterling initially weakened further, as an immediate response to the Budget statement, and although it recovered in the following 24 hours it remains at a level which limits manufacturers’ scope for heavy discounting in the UK.

“We will still see forced registrations but the intensity of such activity will be limited to specific manufacturers, rather than an industry-wide trend.

“The Budget can therefore largely be regarded as broadly neutral in terms of its impact on current residual values patterns and those we have previously forecast for the next 3 years.”

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