UK car sales reach their highest since 2007: Good or bad for UK economy?

In news that will be welcomed by many, it's been revealed that UK car sales have soared to their highest levels since 2007 during the course of the last year. The number of new cars sold within the UK increased by a substantial 11% during 2013, reaching a grand total of £2.26m. 

This is the highest number of sales since the onset of the financial crisis, according to the figures taken from the Society of Motor Manufacturers and Traders (SMMT).  Essentially, the increase amounts to an additional 600 cars being sold each day in the UK when compared to 2012. In December 2013 alone, UK sales increased by almost a quarter to 152,918 units.

Interestingly, the figures are at odds with those seen across the rest of Europe, where they have been falling. What does this mean for the UK? This piece by the Jennings Motor Group investigates.

What fuelled the increase?

It's believed that there were a number of different factors involved in the huge jump.  The first is the vast number of payouts to victims of mis-sold PPI. Total payouts by banks and other financial institutions have already reached the billions, and continue to grow. With average payments of around £3,000, many families have suddenly found themselves in the financial position of being able to put down a deposit on a new vehicle.

As well as the PPI payouts, a lot of the purchases are probably due to consumer ability to buy vehicles on some form of credit agreement, whether lease to purchase or simply a buy now and pay later scheme. There is also believed to be growing consumer confidence in general, something that could easily lead to an increase in sales of luxuries such as this.

Is this good news?

For the car industry, it is undoubtedly good news. In some cases, however, experts have questioned whether such performance is sustainable, given comparisons to the rest of Europe.

John Leech, the UK Head of Automotive at the business services group KPMG, noted that the personal car plan had heavily influenced sales. The PCP involves finance being sold with the car that sees the overall price paid over 36 months, and the remaining half being paid for at the end. However, as a result of this, there is a danger of there simply being too many three year-old cars traded back into the market, and not enough demand to purchase these the second time around. With the amount of loans being taken out, there is also the risk of financial default by many people.

Will this upward trend continue?

So far, it seems unlikely that the high performance of 2013 will continue into 2014.

The SMMT themselves noted that the year's figures had been a bright spot and that the latest industry forecasts anticipated modest growth in 2014, following on from a very positive 2013.

The manufacturing industry itself was unsurprisingly more positive, with Renault Group UK director Ken Ramirez observing that his company saw 'pace in volume being very similar in 2014', with growth again expecting to reach around 10%.

As ever, it’s a matter of waiting to see whether this boom will continue, and if it does, what the continuing impact will be.