Economic Austerity and the outlook for UK Motor Retailers.

It was at the start of 2009 that luxury brands – LVMH, Burberry, Bulgari, Chanel, Balenciaga – first reported ‘luxury fatigue’, where buyers report that conspicuous consumption becomes an embarrassment. It is more than the fact that demand for allotments is at a record high or that spending in the haberdashery department at John Lewis is up 20%, after decades of decline, as we all make do and mend. Canny retailers all report the emergence of a new customer attitude – saving, not spending, as fear of unemployment and high credit costs become the norm. As a result, the July 2010 Nationwide Consumer Confidence Index fell to its lowest level since May 2008. While the ‘wannabe rich’ are cutting back, the mainstream customer, whose disposal income is falling 2% a year, has almost halted discretionary buying. What might that do for car retailing?

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What economic policy would benefit the UK motor industry?

The drop in UK New Car Registrations for July 2010 was unwelcome. Not for the fleet market: sales of both larger diesel-engine variants and off-roader’s were both up. It came from the retail market, where the overall drop of 20,703 units probably reflects the absence of the scrappage scheme. Compared to last year, although scrappage registrations for July 2009 are unavailable, those for August 2009 were almost 17,000, corresponding to last months fall. If further evidence were needed, the brunt of the decline was in the mini and super-mini petrol-engine segments – the heart of the retail car market. More worrying is that the SMMT expect that the 15% registration gains posted in the first half of 2010 will be balanced by a drop of 15% in the second half year. It may be that the July 2010 registrations were a ‘bell-weather’ of what is to come for the economy as a whole. Isn’t that clear evidence that the best policy for UK Motors Plc is to return to a ‘Scrappage Scheme’ package?

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