Automotive Industry calls for extra help from Government

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This news article first appeared on AM-Online
Manufacturers are budgeting for a sub two million-unit new car market next year, the first since 1995. Some companies have told AM that they expect registrations to drop as low as 1.75 million; others points to 1.8 or 1.85 million units. No-one was willing to go on the record, however.

It could mean new car registrations for 2009 falling to their lowest level for 16 years.

Manufacturers’ concerns have been raised with their trade body the Society of Motor Manufacturers and Traders, which is lobbying the Government to adopt a number of measures to restore flagging consumer confidence.

The association wants the Government to suspend fiscal rules, cut interest rates, reverse plans to increase Vehicle Excise Duty rates and put in place a United States-style stimulus package, among other policy measures.

SMMT chief executive Paul Everitt held meetings this week with the Treasury and the Department for Business, Enterprise & Regulatory Reform to update them on the state of the car industry in view of the September registration figures.

He has also briefed the Bank of England and plans to meet influential MPs over the next couple of weeks.

What the SMMT wants

Direct action

* Abandon new First Year Rate for VED from 2010/11 and mitigate VED rises and retrospective banding from 2009/10
* Incentivise fleet renewal and aid move to lower CO2 cars eg. through a scrappage scheme
* Encourage public authorities to renew vehicle fleets
* Ensure energy/fuel price falls are passed on quickly to consumers

Additional action

* Boost disposable income through wage growth or tax cuts/rebates
* Introduce a series of sharp interest rate cuts
* Stabilise house prices and liquidity by stimulating demand and increasing mortgae availability.

September sales fell 21% year-on-year to 330,295, but with just a few days to go, the industry was lagging by more than one-third. Pack deals, self registrations and furious discounting helped to artificially boost figures.

Action was taken across the board, from premium manufacturers to volume to budget.

Retail sales, which include employees and sales to fleets of less than 25 cars, dropped by a quarter to 171,950 units; retail private sales – to private individuals – fell by a similar proportion, to just 137,334, or 41.5% of total registrations.

Falling profits for networks

Dealer networks are reporting falling profits in their composites and some franchises are now averaging a loss.

The final quarter will be just as tough. Kia UK MD Paul Philpott predicts it will be a “bloodbath” – and some manufacturers believe that the number of dealerships in the UK will fall by one-third over the next 12 months, to around 3,700 sites.

So what can be done? The FTSE100 rose by 8% on Monday (13th), back above 4,000 points, after the market reacted positively to the Government’s announcement of a £37bn bail-out plan for Royal Bank of Scotland, Lloyds TSB and HBOS.

It restored some confidence in the general market but the SMMT wants more action directly targeted at the car industry.

Far reaching consequences

It points to the scale of the car industry in the UK, which employs more than 850,000 people, turns over more than £140 billion and accounts for 5.5% of Gross Domestic Product (GDP).

“We need to see significant further cuts in interest rates and those must be passed on to consumers and businesses in terms of lending and finance costs,” said Everitt.

“We need strong signals from the Government that they understand the issues and pressures facing the industry.

I’d like to think we can get some progress on the VED rules and we also need to look at the dealership and service industries to help ease the burden there.”

An industry in recession

Everitt believes the industry is already in recession, a view shared by 88% of people responding to a poll on am-online.com.

Roy Kishor, partner at Kroll Corporate Advisory & Restructuring, urged the SMMT to highlight the gap between the taxes paid by the motor industry and the motorist and the amount spent by the Government on research and development, roads and infrastructure.

“The gap stands at approximately four times in favour of the tax raised, with the Government using the automotive industry and motorists as a cash cow,” he said.

Kishor believes the SMMT should call on the Government to improve tax incentives for R&D investment on an increasing basis so there is an accelerating benefit to companies to invest more.

“There should be incentives for recruiting skilled engineers and designers who work in R&D and no barriers to overseas recruitment from countries such as India,” he said.

“There should be regional funding for capital investment in R&D equipment and facilities, in addition to existing tax credits.
“The Government should be helping suppliers to ensure lean manufacturing skills are in place to world- class standards.”