Fuel efficiency prompts car buyers to downsize

As sales of the mini segment trebled in July, new research from uSwitch.com reveals that further fuel could be added to this trend when new the new plates hit the forecourt next week. The research reveals that 33% of potential car buyers claim they are planning to down size their existing car this year. This, coupled with the surge in small cars purchased under the scrappage scheme, should give the industry a further and well needed boost of income. However, this could spell bad news for second-hand buyers, as this extra demand has caused an increase in the cost of small cars. In fact, reports show that some have gone up as much as £830 in the last year.

Already, Ford is planning to build another 6,000 Focus small cars between now and the end of September as demand has been so high this year. In contrast, Ford's Explorer (once upon a time a top-selling SUV) was the most traded-in vehicle. Equally, Hyundai are celebrating a similar success through sales of the i10 a i20 hatchbacks, with i10 scrapping into the top 10 sales chart for the first time ever last month.

When it comes to the most important factors considered when buying a new car, more consumers (36%) consider fuel efficiency above the cost of the car (34%). Much of this could be attributed to the surge in fuel prices over the last six months from just 90.6p to 104.7p today, a problem which will be compounded further by next week's fuel duty increase.

Although registration figures have indicated signs of improvement within the UK car industry, with the new-car market posting its smallest decline since July 2008 at -15.7% last month, the research also shows that it is far from out of the woods yet. Over three-quarters of motorists (79%) are still reluctant to put their money where their wheels are, conceding that the economic climate is likely to have an adverse impact on their plans to buy a new car.

Of those 79% of motorists, 7.5 million can't see themselves being able to afford a car in the forseeable future, 50% are now planning on holding onto their curent car for longer, and 5% who would typically buy a new car are opting for a cheaper second-hand model instead. The findings also reveal that consumers have, in fact, become even more cautious when it comes to a big ticket car purchase than they were in 2008, with the number of motorists who believe their car buying power remains unchanged in spite of the economic climate, falling from 18% in September last year to just 6% currently.

In addition to there being less demand for new vehicles amongst motorists, it is apparent that those who haven't ruled themselves out of the market altogether, are intent on significantly reducing the amount they spend, with almost a quarter (22%) now making budget cutbacks, compared with 15% of motorists in September last year.

Since September 2008, the number of drivers looking to spend between £2,500 to £5,000 less has increased from 28% to 33%, the number intending to spend between £5,000 to £10,000 less has increased from 7% to a massive 29%, and those looking to spend between £10,000 to £15,000 less has increased from one in a hundred drivers (1%) to one in ten (10%).

Mark Monteiro, insurance expert at uSwitch.com, comments: "Of those motorists who are in a position to afford a new vehicle, size and fuel efficiency have emerged as crucial factors when choosing a new car. Consumers seem to be soley focussed on keeping the longer-term running and maintenance costs are kept to a minimum.

"In spite of the government's incentive scheme and bumper discounts on the forcourt, however, many motorists are still reluctant to put their money where their wheels are. It is hoped that the new ‘59' number plates due to be released in September will give an added boost to dwindling car sales, but the true white knight to answer the distress call of the faltering motor industry will come in the form of increased consumer confidence. However, with unemployment still on the increase it is unsurprising that consumers are continuing to be cautious by doing a u-turn on their car buying plans."

Holding onto an existing model for a longer period of time is increasingly the norm in the current recessionary climate, however consumers need to ensure that their vehicles are properly maintained and roadworthy, and appropriately insured. It is vital that consumers don't start to cut corners that ultimately involve taking chances with the safety of themselves and other road users. Whatever the age of a vehicle, cost conscious drivers should make sure that they are getting the best possible value for their motor insurance and that means shopping around rather than just relying on a renewal quote. Getting a better deal could save motorists up to £160 a year- a real financial lifeline in these cash-strapped times.

Mark's top tips for car buyers:

For those of you that are tempted to bite the bullet and buy a brand new car, you must do your home work before you step foot on the forecourt. This includes thinking about the cost of insurance, particularly if you're looking at sportier models.

Don't be afraid to haggle, not only on the price, but for free extras such as extended warranties and service packages.

Having the money ready before you start car hunting will strengthen your bargaining power as you can make the purchase immediately - you are effectively a cash buyer.

Some car dealers offer 0% finance on new cars, these deals are definitely worth considering if you can get one - you may have to pay a hefty deposit though.

When looking at car dealership finance, make sure you take into account the size of the deposit and the final payment as well as the monthly payments as this can really ramp up the overall cost.

Leasing deals can sometimes work out cheaper as consumers may not have to pay for servicing and repairs.

For consumers with a poor credit score, leasing could be next best available option as they are not actually buying the vehicle.

It is also worth looking at cars that have been pre-registered by a dealer. They only have a few miles on the clock so in effect you get a nearly brand-new vehicle at a second-hand price.

The collapse of a motor manufacturer can have a knock-on effect on a car's re-sale value plus the availability of vehicle parts - these factors should be carefully considered by potential buyers.