The UK is known as one of the biggest car markets in the world. The country not only engages in the production of several car models but is also a well recognized market for most international car manufacturers. The economy ranks among the most developed in the world hence demand for what in other nations may be considered as luxuries is very high. For many years then, demand for cars in the country has been very high. The boom years in 2004 to 2006 saw unprecedented sales figures being recorded. The main reason was the high incomes earned by the vast majority of UK residents. This paper gives a brief analysis of the current state of the car market in the UK.
The onset of the financial crisis originating from the US which hit the UK in the end of in the year 2008 turned around the situation. The financial crisis affected several sectors of the economy but most importantly the financial sector. A general recession resulted which is being experienced to date. A recession is an economic phenomenon which sees a general slowdown in the economic activities of an economy. The general resultant effect of reduced economic activity is the loss of employment and hence the plummeting of incomes available for households to use in spending. This is a key determining factor to the shrinking market for cars in the UK economy.
Since the start of the recession, car sales in the UK have fallen drastically. The high oil prices just prior to the recession only served to aggravate the situation. The August of the year 2008 was the slowest since 1966. The sales levels fell steeply to figures just above 60,000 new cars putting to risk the future of UK car manufacturers. Since then the situation is improving with reported improvements being recorded in some types of vehicles (Arnott, 2009, Par4).
Of critical importance is the fact that there has been a shift in the types of cars demanded. First, the high oil prices already gave a strong incentive towards the purchase and ownership of small cars. It is however the lower incomes received during this recession time that is putting the last nails on the coffins of car manufacturers who mainly manufacture big cars mostly associated with high fuel consumption.
In response to the recessionary forces ravaging the economy, the UK government, just like other western nations decided to intervene in the automotive industry so as to support the continued employment of the workers already working there. The most significant measure taken to boost the car market is the introduction of the scrappage scheme accompanied with the lowering of the Value Added Taxes (V.A.T) on vehicles produced in a bid to make cars much cheaper. The scrappage scheme was initiated on May 2009. It introduced some 2000 pounds discount in the purchase of a new car in a case where the new car is bought to replace the old. Consideration in coming up with the scheme also incorporated environmental benefits resulting from discarding old smoking vehicles and replacing them with new fuel efficient vehicles (Rdsingleton, 2009).
The results are evidently positive. The month of October 2009 saw the sales volume rise to about 168,942 new cars which is a 31.6% above the sales figure recorded in the same month in the year 2008. According to the Society of Motor Manufactures and Traders (SMMT), the improvement was fourth in arrow since the introduction of the scrappage scheme ((Kollewe 2009 Par3).
It is worth noting that even in the turmoil, there emerged both losers and gainers. The gains are largely skewed in favor of car manufacturers producing smaller and lighter cars. The biggest gainer was the smart car company which has gained by 105% of the sales volumes prior to the recession. Others are Dodge gaining 54%, Kia motors gained 25%, Volvo20%, Nissan16%, Daihatsu 15%, Chevrolet 13%, Jaguar 12% and Lotus11%. It is however notable that the gains were mostly resulting from the sale of the lighter and cheaper car models of the respective car manufacturer.
The losers were mainly those whose total effort is only put into the production of bigger high fuel consuming vehicles. The largest loser was Astorn Martin which lost 26% followed by Chrysler 20%, Bently18%, Citreon13% and Honda10%.
At the moment the future of the car market in the UK is promising as the economy is gradually rising from the recession. However, the optimism should be embraced with great caution. Very soon, scrappage scheme which has been the main driver of the high sales is to come. Again the VAT percentage is to revert back to 17.5%. Still there is a possible implementation of a government proposal to introduce taxation at the showroom where each car will be charged 950 pounds. In addition, the interest rates are widely expected to increase in the near future. Clearly, a combination of all these negative factors may very well overwhelm the positives originating from the recovering economy. The prevalent low value of the sterling pound may also force prices up (UK: Challenges ahead for UK car market, 2009).
As can be seen, the UK car market is still not fully recovered from the effects of the economic recession. The positives being observed today should be cautiously embraced as the upcoming few months are very significant in determining the direction of the market.
References
Arnott, S., 2009. UK car market: Stuck in reverse. The independent. Web.
Kollewe, J., 2009. Scrappage scheme boost continues as new car sales up 31% on last year. Web.
Rdsingleton, 2009. UK Car Scrappage Scheme – How it Works… Web.
UK: Challenges ahead for UK car market, 2009. Just-auto. Web.