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Low interest rates drive new car sales to a record
Sunday Telegraph (London, England)
Edward Simpkins
January 4, 2004
SALES of new cars are expected to have hit a record high of 2.57m in 2003, according to figures due to be announced this week by the Retail Motor Industry Federation.
The strong sales, which beat another record year in 2002, have been driven by low interest rates and intense competition. Leading car makers have offered huge discounts, making Britain one of the cheapest countries in Europe in which to buy a car.
Alan Pulham, a director of the Retail Motor Industry Federation, said: "Sales will be just ahead of last year, and they have been driven by perceived value for money.
"You can now buy a perfectly adequate car for pounds 8,000. Car ownership has stopped being aspirational and with the financing packages now available, anybody in work can afford to buy a car."
In real terms, the price of a new car is about 20 per cent lower than four years ago, according to Pulham.
Much of the recent growth in sales has been driven by demand for smaller cars. Premium brand manufacturers such as BMW, which owns the Mini, and Mercedes, which makes the A-class range, have been expanding into the small car niche of the market.
Industry executives say the presence of the luxury brands at the compact end of the market has made small cars increasingly fashionable.
The other driver of sales has been changes to the tax treatment of company cars which give staff more options over the choice of models they drive. This has led to a trend away from traditional fleet cars.
"Every month this year we've seen more BMW 3 series sold than Mondeos," Pulham said. "The tax on the list price is the same. Which would you rather have on the drive?"
However, some auto industry executives have privately expressed fears that 2003 could turn out to be the peak for sales following two years of strong growth.
New car sales are closely linked to a strong housing market, with many purchases being financed by remortgaging. This has led to fears that any rise in interest rates could lead to a loss of confidence among potential buyers.
In 1990, new car sales plunged from the then record 2.3m the previous year as tens of thousands of would-be buyers found themselves burdened with negative equity on their homes. The 1989 figure was not surpassed until 2001, when 2.46m cars were sold. In 2002 sales hit 2.56m.
But Pulham claims the fears of a slump in sales have been exaggerated. "Even if the interest rate rises above 4 per cent, for most people the difference on an average pounds 10,000 loan is not that much. As long as the housing market remains strong, people feel good about their personal equity," he said.
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