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Guest post: Driving Forward: UK car sales at highest level since 2007

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Crisis? What crisis?

Certain sections of the UK economy may still be feeling the pinch despite improving growth figures, but the British motor industry is certainly not one of them. Following 22 months of continuous growth, the UK is now the second largest car market in Europe, behind only automotive giant Germany in the rankings. Last year 2.26 million cars were sold in the UK – that’s a near 11% jump on the 2012 figure – and the highest since the start of the financial crisis, according to figures released by the Society of Motor Manufacturers and Traders (SMMT). Across Europe however car sales have been falling – so what is so different here? The Leden Group, providers of low cost car leasing on Ford Fiestas – the most popular vehicle in the UK last year – explore three potential explanations.

Increased Consumer Confidence During an economic downturn, it is not just a lack of money that stops people buying new things but a lack of confidence. When the news is full of doom and gloom over the economy, households naturally begin to tighten their belts and protect what they have – not go out and enter into an expensive and lengthy finance agreement. It could also be that falling unemployment has had a part to play, as families reacquire the disposable income that they lost during the recession.

Cheap Finance Options The improving economy has also helped to lower the cost of car finance deals and encourage those financing companies to lend more. According to Mike Hawes, chief executive of the SMMT, “cheap finance deals… account for around three-quarters of transactions”, so it is clear that this has had a major part to play in the rising sales figures.

PPI Payouts Unless you’ve been living under a rock, in a cave or on the other side of the world for the last two years then you have probably heard about Payment Protection Insurance, and how the financial industry has had to set aside over £17bn for the clean-up. Although it is hard to tell how much of an impact PPI payouts had on the UK’s car sales, considering the average payout was around £3,000 – more than enough to place a deposit down on a new car – it is likely that at least some of this money found its way to the car industry.

Potential Problems Ahead? However the figures aren’t all good news – as the spike in car sales now could see an oversupply of used cars in three years when consumers decide to return their cars at the end of a PCP deal, leading to a subsequent drop in price and increased risk of loan default by consumers. However for the short term at least, growth is expected to continue, although the SMMT predicts that it will slow to 1% for 2014.

Check out the Top 20 best-selling models in the UK in 2013 here!

John Rooney blogs about issues affecting the motor industry as well as the latest innovations in engineering and technology. This guest blog was written in partnership with car leasing specialists, The Leden Group.

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