I’m not a huge fan of Government interference in the market. Whatever they do, they usually screw it up. But this time they’ve managed to screw it up by doing nothing. Well done, Lord Mandelson.
We’ve heard this week about the huge drop in car production in the UK – down almost 60% last month. Now some of this is due to lay-offs to cut production and get stocks to a more manageable level. But much of it has to do with the huge drop in new car sales.
Yes, we’re in the middle of a killer recession. People are understandably worried about what the future holds, and are not taking on commitments they don’t have to. But not everyone. Not by a long chalk. There are lots of people, people who six months ago could get credit on a new car without any problem, who are now unable to. That’s the Governments fault for not wielding a big stick to the banks we are all now major shareholders of.
But there is still a strong demand for cars. Used car prices have probably firmed by up to 10% in some cases since the start of the year. Why, if there’s no demand, you ask. Well, two reasons. One is that it is of course better to buy a second hand car and let someone else take the hit. But one of the big reasons is the proposed scrappage proposal.
Germany has seen a 21% increase in new car sales after introducing such a scheme. And it was strongly rumoured that we would get the same. But Mandy has procrastinated for too long on this and it’s causing mayhem. We have close contacts with a lot of new car dealers (we have to grab the news from somewhere!) and every one of the mainstream dealers, almost without exception, is reporting calls from prospective customers asking about the scrappage scheme. And many are making it clear that they won’t buy until the scheme is introduced.
So what’s the Government to do. Well, for one they could bring in the scrappage scheme. Even if it brought a million new sales (which it won’t) it would cost just £2 billion. That’s about a weeks worth of bank bailout money! Secondly, they could finance a scheme to make credit available to the car buyer. Finance companies were making good money even six months ago, so it would be a no-cost, no-brainer to fund such a scheme. All they have to do is channel some funds directly to car finance companies and insist it is subject to the same underwriting criteria as twelve months ago.
But if they don’t get their fingers out soon, we won’t have a car industry left.