Cheap car leasing will continue to drive UK car market in 2014

Growth

Photo credit: Simon Cunningham

2013 was a great year for the UK car industry. Both manufacturing and new car sales continued to grow and sales were up almost 10 per cent on 2012. But, can the UK’s new car sector continue to grow in 2014?

Cheap car leasing and low cost contract hire deals have helped bring many models within the reach of buyers. But, with manufacturers set to turn their attention to the improving car market in Europe, will the UK continue to see such booming growth? Keep reading to find out…

New car sales set to remain high while cheap car leasing is available

The most recent UK car manufacturing figures showed that 1,286,287 motors were produced in the first 11 months of 2013, a rise of 5.4 per cent compared to the previous year. According to the data from the Society of Motor Manufacturers and Traders, sales were also up – by an impressive 9.9 per cent.

Of the five major European car markets – Britain, France, Germany, Italy and Spain – only Britain saw growth in the new car market in 2013.

The Daily Mail reports that this ‘has been largely fuelled by payment protection insurance payouts and cheap financing’ such as low cost car lease, hire purchase and contract hire schemes. So, if the PPI compensation and financing dry-up in the coming months, could the UK’s car market start to slow?

The answer is ‘no’ according to John Leech, head of automotive at KPMG. He says: “UK car sales will grow in 2014 but at a slower rate than in 2013 as we are almost back to our natural long-run average. The rate of growth depends principally on when the car manufacturers pull back on the cheap credit that is currently pump-priming the market.

“If this cheap credit [car leasing, hire purchase etc] remains available throughout next year then there is an increasing risk of oversupply of new cars which could raise anxiety regarding a potential shock fall in used car residual values.”

Dean Bowkett, chief editor of global services at car website Glass.co.uk, agrees. He said: “Britain is likely to see some minimal growth in 2014 as manufacturers will continue to seek to exploit what is currently the healthiest market in Europe.

“However this is going to be strongly influenced by the continuation of cheap finance [car leasing and contract hire] and relatively strong discounts: should either of these two not happen then sales will suffer.”

UK car industry helping the British economy

Tim Abbott, president of SMMT, believes that Britain’s car market boom is helping to create thousands of new jobs and to rebalance the economy.

He said: “The latest SMMT forecasts suggest 2014 will see a continuation of the recovery. We expect modest growth in both registrations and manufacturing as the big investments and model cycles crank up the pace.

“The market is up by 10 per cent. Growth that, we believe, is sustainable. But we do not want a market artificially stimulated by over-stretched credit. Consumers are becoming more confident but it is a cautious optimism, borne of a painful crash.”

While the cost of car leasing and contract hire has fallen in recent years, many experts believe that buyers will have to more carefully shop around for cheap car lease and contract hire deals in the UK in 2014 as manufacturers concentrate on the recovering car markets in Europe.

Richard Parkin, director of valuations and analysis at Glass’s, said: “Private new car sales, buoyed by personal contract purchase driven growth are likely to have peaked.

“As the rest of the EU begins to turn the corner with respect to demand, the need for manufacturers to offer incentives into the UK market will diminish.”

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