Tough times for car sales

by Alex Brownsell, Marketing 30-Sep-08, 08:48

LONDON - The automotive industry is having a year to forget. Sales of new cars for the year to date are down by nearly 4% on 2007, while sales in August fell a catastrophic 18.6% year-on-year, according to the Society of Motor Manufacturers and Traders.

Even if car dealers get consumers into showrooms, the precarious state of the UK banking industry is making it harder for buyers to arrange the necessary finance to buy cars, whether new or used.

Some of the bigger dealer networks are introducing a raft of financial incentives to tempt consumers back into showrooms. The rise of '0% finance' has accelerated over the past few months, while '50/50' deals (50% of the deposit upfront, then £50 to be paid each week) are becoming more popular.

In July, more new cars were sold with point-of-sale finance than pre-arranged loans for the first time (51%, compared with 47% in January), and the Finance and Leasing Association claims that the value and volume of used-car finance agreements is up 2% for the year to July 2008.

'Over the last few years, consumers had been able to obtain loans with great rates and walk into dealerships to buy a car with their finance already secured,' says Kirk Fletcher, managing director of the Automotive division at analyst firm Experian. 'The credit crunch has made this harder, and people are not only finding it harder to get loans, but also to get loans with reasonable rates. As a result, point-of-sale finance has seen a significant uplift.'

The Retail Motor Industry Federation, the representative body for UK automotive industry businesses, says car dealerships are looking to match special offers with what consumers are demanding most. 'With consumers looking closely at costs, dealers are trying to offer savings on popular models. They are also making sure those models with good fuel economy and value-for-money are readily visible,' says spokesman Alex Wells.

Despite these financial inducements, convincing consumers to set foot inside dealerships is only going to get tougher, reckons Fletcher. 'The market is unstable at the moment and dealers recognise this. While point-of-sale finance is an opportunity, the biggest challenge for dealers is getting consumers into the dealerships in the first place,' he says.