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Interest rate rise would have no impact on car sales says Lookers' boss

Lookers' chief executive Andy Bruce has said future interest rate rises will not affect car sales - and could easily be offset by manufacturers passing on their gains from foreign exchange.

Bruce (pictured) told Reuters that small rises in interest rates would be "inconsequential".

"Every quarter-point movement, if it's passed on to the customer, is £3 a month," he said. This would equate to just over £100 to the cost of an average vehicle on a three-year finance personal contract plan, or PCP.

"It's not going to stop somebody buying a car. So even three or four interest rate rises on that basis is not going to fundamentally change the affordability of the car."

Bruce said many firms could easily absorb the cost of a rate rise due to impact of the strengthening Pound against the Euro which benefits importers of Euro-denominated car parts.

Last week, the Pound hit a 19-month high against the Euro following comments from European Central Bank President Mario Draghi that Euro Zone rates would be kept at record lows for the foreseeable future, a contrast to rate expectations in Britain.

For Ford, which does much of its British business in Euros - such as parts-purchasing and imports - every Euro cent that Sterling moves away from parity with the Euro, the carmaker gains about £30 million in turnover, Bruce said.

He said this kind of foreign exchange boost was being felt by many carmakers in Britain.

"The movement in the exchange rate in the last year of eight points is about £1,000 a car to the UK on the basis that the average selling price is about £12,000," Bruce said.

"That's the difference between what they will be realising in revenue on the basis of today's exchange rate versus 12 months ago."

However, any interest rate hikes could hit consumers' disposable incomes and spending power by raising mortgage costs.

Britons are also on average more highly indebted than people in most other advanced economies.

Bruce said that Lookers was now increasingly concentrating on premium and luxury brands including Volkswagen's Audi and Bentley models as well as Tata-owned Jaguar Land Rover where margins tend to be higher.

He also said the firm had recently begun to consider expansion and the opening of its first new-car dealership abroad was a possibility.

"I wouldn't say it's on the horizon but it's something that I wouldn't rule out in the long run," he said, adding the possible timeframe would be in five or more years.

"We haven't got a strategy for it but my personal preference would be the US I think the market is more open there."



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Comments

  • M - 11/07/2014 08:56

    I don't agree with this nor feel it will have no impact . It may add a few pounds a year to a Motor loan but in the wider economic arena, people will face much higher monetary increases in their mortgages. It will take more disposable income out of the economy, thus the likes of car sales will decline as consumers will churn less frequently due to affordability

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  • Weave - 14/07/2014 15:21

    Interest Rates must rise at some point. Whether they directly affect car sales is a days debate, particularly with used cars where a reduction in demand creates almost instant price reductions that will be followed by rejuvenated demand. But this is a trivial point compared to the fact that interest rates must rise. Personally I think we would all be better off in the long term if rates rose a little now followed by a little more at some point later etc. Holding them down as we seem to be determined to do will end in pain, in the form of a swift readjustment upwards at some point (who knows when), followed by a sharp pause in spending by the consumer. Such situations are not desirable for anyone.

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