Behind UK car sales slump, soft market

The Society of Motor Manufacturers and Traders’ latest figures show a 12% fall in the UK new car market in October which is the seventh consecutive monthly decline. The industry group warned the government’s confused policy approach to diesel vehicles is a contributing factor to low consumer demand. 
 
Ana Nicholls, automotive analyst at the Economist Intelligence Unit said falling car sales should also be viewed against a backdrop where the car market is coming down from record highs and other economic factors that have impact. 

Nicholls points out there is a limit to the number of new car buyers who can be enticed into showrooms. She says it's not just a question of drooping consumer confidence but also the economics of the car market have changed in the past few months. 

The low pound means carmakers can no longer afford to use the kind of discounting and offers they have been using to entice customers and keep the market buoyant. The diesel market, meanwhile, has been hit by the threat of regulation and higher levies in the wake of the emissions scandal.
 

Interest rates impact on car loans

The Bank of England's decision to raise interest rates won't help the market, either, given that 86% of all cars are bought on credit - many of them on personal contract plans. Total car loans now stand at nearly £60bn.

Although credit will remain cheap in historic terms, lenders will be forced to pass on the interest rate rise sooner or later. 

The glut of cars sold over the past few years will also hasten devaluation as the market softens, which could push up loan rates further leading many consumers to eye the used car market. 
 
Nicholls said: “The car industry is lobbying for intervention, but I doubt that will happen on an overall level. There may be an opportunity to tweak incentives for low-emission vehicles further, though, keeping at least this part of the market growing.”