Carmakers pin hopes on British bright spot

LONDON - Britain was the only bright spot in European car sales last year but to maintain the growth, carmakers will have to keep offering such hefty incentives that they may erode any remaining profit.

European car sales slumped to a 17-year low in 2012 with only Britain bucking the trend with 5.3 percent growth, although at just over 2 million vehicles, sales were still 15 percent below the market peak in 2007.

This year, dealers are pushing cheap loans and special offers while also launching heavy sales pushes on fuel efficiency and stronger online tools to help persuade people to buy despite the on-going stagnation in the economy.

An operator checks a group of new cars at a Ford showroom in Burgos Nov 2, 2011. [Photo / Agencies]

 

So far, their approach seems to be working. In January, registrations rose 11.5 percent year-on-year while in Germany and France they fell 8.6 and 15.1 percent respectively, European industry group ACEA said.

"Last year punters seemed to have loosened the purse strings a bit, maybe after a few years of not splashing out and because the economic doom and gloom wasn't as bad as it was," said Derek Jarvis, a car dealer in Bromley, south east England.

Auto industry body SMMT forecasts a 0.6 percent rise in 2013 and 2.6 percent in 2014, with the pace of growth dependent on how quickly consumer confidence recovers.

To take advantage of any confidence at all, Ford is offering many of its new models at more than a 12 percent discount, while GM's British Vauxhall unit is offering interest-free finance for up to 5 years and a deposit contribution on some models.

Carmakers can offer more flexible deals in Britain than in some other markets, said Gareth Dunsmore, general manager for marketing communications at Nissan Europe.

More and more vehicles were redirected to British dealers last year by European carmakers, convinced they had a better chance of selling them in the UK, while a mild respite in the pound-euro exchange rate during the second half of last year also helped their decision to push new cars into the British market.

"That's why volumes have gone up," said Trevor Finn, chief executive of Britain's top car dealer Pendragon. "Nothing to do with Britain booming. It's to do with car manufacturers doing better deals because they can."

A stronger pound increases the margin on European-made cars sold in Britain and gives car companies more room to cut prices.

However, if the pound drops, as it has in recent months, that will change. In mainland Europe, offers have become so aggressive in order to shift stock that many cars are sold at a loss. Peugeot has said it loses about 350 euros per car.

"I don't think mass market (car) makers are making much more than a 3 percent margin at the moment. I'd be happy with an average of 3 percent per sale in this economy," said Jarvis.