Guest post: UK Sales of new cars are at 5 year high – but what’s behind the rise?

Nissan Qashqai in the Sunderland, UK plant.

A report released by the Society for Motor Manufacturers and Traders (SMMT) showed that UK sales figures for new cars hit a five year high in September, continuing a trend for increasing new sales. This bucks the trend for elsewhere in Europe, where new car sales fell to their lowest level since 1990 earlier this year, in part down to huge economic difficulties in countries like Cyprus and Spain. Given that the UK’s car market is the second biggest in Europe, behind only Germany in terms of sales figures, this is fantastic news for new car sales in the EU – and could potentially help to bolster sales across the board. This post, courtesy of Advanced Vehicle Leasing, runs through what economic changes, and changes in the new car market, have led to such a rise.

Increasing Consumer Confidence

Contrary to many other areas in Europe, consumer confidence in the UK is gradually rising as reports of economic recovery across the board keep rolling in. Unemployment rates in the UK for 2013 are at a three-year low, and inflation rates have dipped to 2.2% as of October, while actual economic output is at a three-year high. While the UK is in the same situation as many other European countries in that they’ve not fully recovered from the economic hardship of the last five years, the outlook is looking good. This has led to a healthy rise in consumer confidence, with people tentatively starting to increase their spending. While disposable income isn’t necessarily increasing at the same rate economic growth is, it’s overall confidence that’s leading more people to opt for getting a car on credit where they might not have done previously.

Attractive Financing, Credit and Leasing Packages

According to data unveiled by the SMMT, cars bought on credit or through leasing packages skyrocketed to a record high over 75% – up from 50% for the same period in 2011/12. This is thanks, in part, to falling rates of inflation making borrowing far more attractive, but it’s also the leasing and credit packages themselves that are drawing in the buyers. With greener and more ‘eco-friendly’ models being rolled out off the production line, the actual cost of owning a new car is coming down both in terms of running costs (ie. fuel costs, repair costs) but also in terms of tax and insurance. As newer cars become lower emission models, this reduces the car tax paid, and increases in safety and reliability help keep insurance down.

Explosion in successful PPI Claims

It sounds unusually specific, but the Payment Protection Insurance scandal, which resulted in my people paying for something they didn’t want or need, has resulted in millions of successful compensation claims. Mike Hawkes, of the SMMT, told BBC news that the claims give people a nice cheque that “isn’t enough to put a deposit on a house, but is enough to put a deposit on a brand new car.” This has given a significant number of people the boost in disposable income that is lacking in the average person’s pay packet to finance that new car that they either desperately need or really would like – in turn, this does the economy some favours with increased consumer spending and growth in the UK car market! But is this trend set to continue? The SMMT certainly think so, but predict that the rate of growth will likely slow down, though it will still remain relatively high. As this continues, we could see this consumer confidence turn into very real economic growth for the car industry and for the UK as a whole.

This guest post was written by Tom McShane – automotive blogger and writer for UK-based company Advance Vehicle Leasing, who provide affordable leasing packages for a broad range of new vehicles.