THE GUARDIAN

David Gow, industrial editor
Thursday January 8, 2004
The Guardian

Britain could be poised for a fourth successive year of record car sales as consumers shrug off the threat of higher borrowing costs and enjoy a continuing squeeze on showroom prices.

The Society of Motor Manufacturers and Traders, SMMT, confirmed yesterday that a spurt last month drove new car sales to 2.58m, with private buyers accounting for almost half of sales - a level not seen for 13 years.

The industry body is forecasting a 3% dip in sales this year to 2.5m and a further 4% fall to 2.4m in 2005, but Paul Everitt, the head of policy, admitted this was a conservative estimate. The SMMT had predicted a slight drop for 2003, but a 7.5% jump in December gave annual growth of 0.6%.

"These are unusual circumstances: steady economic growth; record employment levels; low borrowing costs and very competitive pricing," he said.

Analysts believe it will require a substantial rise in interest rates or another economic tremor to shake consumer confidence. The City expects base rates to rise from 3.75% to 4.5% by the year's end.

"If rates rose sharply that could have a significant effect," Mr Everitt said. "But any increases are likely to be 25 percentage points and proceed on a very cautious basis."

Industry optimism has been strengthened by growing signs that younger employees and retired people are using increased personal income to buy more new cars - and more frequently.

Last year's figures confirmed not only a shift to diesel, which took 27% of the market, but towards smaller cars at one end and premium brands at the other. Super-minis made up 34% of the market.

Traditional market leaders such as Ford and Vauxhall lost ground, to below 15% and 13% respectively, but Mercedes sales grew 16%, BMW's 10% and Audi's 8%. Japanese and Korean firms increased their sales and market share.

BMW, boosted by a steep rise in Mini sales, recorded a record year with 5.2% of the market - in sharp contrast to the fortunes of Rover, its former UK unit, which saw a further 27% drop in December, against the same month the year before, after one of 33% in November. Rover's annual sales fell 3% to give it a market share of only 3.7%.

The booming consumer market has come with a further squeeze on manufacturers' profit margins, prompting Nissan chief Carlos Ghosn to warn again that the Japanese group's Sunderland plant could lose the new Almera if the UK stays outside the euro.

Nissan, employing 4,500 on Wearside, is due to decide this year on a replacement Almera and in 2005 on a site for production, with Sunderland pitted against Renault's Douai plant in France.

Sunderland, Europe's most productive car plant, has never made a profit but won the case for building the new Micra over a French plant after the government gave a £40m grant. It produced a record 332,000 cars last year, including 190,000 Micras.

The company said membership of the euro was just one factor, with state aid, determining the site of the new Almera - though Mr Ghosn said the decision would be a "no brainer" if Britain were in.