Will Mandy's latest scheme kickstart the car industry?

D K McGregor

I wouldn't buy a car from that man.

Liz Brown

No-one wants to buy cars when the Govt's own policies penalise the ordinary motorist - be it on carbon emmissions,parking/speeding. I personaly have no intention of bailing out the Gov'ts marginal constituencies and I don't see these measures working

Michael Doyle

It’s time. ( Quite a good slogan, except its been used before … by the Australian Labor Party in an election campaign in 1972.)

It’s time to bell the cat. Call Brown’s Cabinet what they really are. Beige conservatives. Their policies pump funds into Business and the Banks and hope that they will do the right thing and magically turn the economy around. Yes, Brown and his pathetic excuses for politicians have stopped bothering about pretending to be well-meaning socialists. The half-hearted reduction in VAT is typical of a cowardly Right-wing government, throwing breadcrumbs at the workers and pensioners whilst sucking up to what it thinks are its mates in the City.

It’s time.

Sally Chatterjee

The moment you drive out of the showroom your car depreciates in value but the value of your loan will not: instant negative equity.

By all means look at ways to save manufacturing jobs but propping up car credit is a bad idea that may cause financial difficulties for those taking the loans.

Alfred T Mahan

Of course! The recession was caused by there not being enough cars. Silly me for thinking there was a world problem with the motor industry because we've all been making too many of the things.

As I sit on the M25 in the rush hour I'll be really glad my money has enabled the man in front, and the man in front of him, to buy a new BMW. Heart-warming, I call it.

Isis

Yes, there is a problem with credit. People or companies who used to sail through credit checks began to fail them in the autumn. Business were failed purely for being in the wrong sector, eg travel agencies. Failing credit goes on your record, of course, regardless of moving goalposts by the credit companies. Further, the credit companies don't release the money to dealers after the sale thus dealers are carrying debt for too long and it hurts their cash flow. The whole thing has slowed down. Demand isn't off all that much, but belt-tightening emerges in down-sizing and only going for really aggressive pricing. There are good deals around for those with money, and well-priced cars move quickly. Cars with neither quality or price to recommend them are sticking. Hardly any cars are being made as manufacturers try to keep excess stock under control. They are releasing stock cars slowly, but only when there are big discounts does this work.

It's quite possible Mandy's plan will make a positive difference. Whether it's enough to rescue the industry, especially the British bits of it, I don't know.

Lance Grundy

The idea that that there are millions of credit-starved Britons queuing up for loans that they cannot get by hook or by crook is, quite simply, ridiculous. It is the merely the Labour Party – and a fair number of economic commentators, indulging in wishful thinking.

According to the Credit Action website the average British household is now £9,600 in debt and, more tellingly, that figure increases to an astonishing £21,875 if the average is based on households who actually have some form of unsecured loan – an amount not much below the average wage.

The British public are simply ‘maxed out’ They are entering this downturn up to their eyeballs in debt and it is crushing the life out of the ‘shop ‘til you drop’ economy and will continue to do so until there is some serious de-leveraging and people get these debts paid down. For the man in the street this really is a debt crisis – not a credit crunch.

michael lovett

Sally you are so right and HOW many of these Gov ministers own cars and understand the immediate depreciation of their newly purchased asset?

Jonathan

Actually I think this is one of the GVN's better ideas.

According to David Cameron, NISSAN's bosses had told him, that the non-availability of car finance both in the private and fleet sectors, was a major contributing factor in the steep decline in UK car sales.

Clearly by itself this measure will not restore car purchases to their 2007 levels - but it might help steady the decline.

Furthermore, this measure can also be seen as an expression of good faith with the car industry. After all, with the U.S and other GVN's offering bailouts to their auto manufacturors we cannot afford to be seen to be doing nothing. Otherwise when the up-turn comes and the car-makers begin building new models / modernizing plants / taking on extra staff - guess which countries they will be more inclined to invest in. Those that helped in the downturn, or those that did nothing....

And finally - at least he isn't giving the car companies public money directly, as some on the left had urged.

BTW before anyone asks yes I am a Tory voter and yes I do think that this GVN generally hasn't got a clue what its doing. But credit where credit is due...

BrianSJ

I presume that his dishonourable lordship didn't comment on the irony of taxing cars and petrol to death while offering credit. Would they like to offer me a loan to buy cigarettes?
Hewitt spent a fortune 'saving' Rover for a vital week through an election, and things have got a lot more desperate since.
Please do not treat this man with respect.
I don't have data but suspect you are right - it is debt-driven belt-tightening (and better cars) not credit.

Mrs Campbell

And suppose I want credit to buy a Renault/Volkswagen/Citroen/Lada? Remember this is the ex-European Trade Commissioner and it would be anti-competitive to subsidise British industry alone

Garry

Many new car sales were funded by mortgage equity withdrawal - the rates were cheaper for a start and the thinking was house price inflation would pay for it in the end.

This source of income has been turned of and will not be coming back.

Did no one at the banks, FSA, BoE or Treasury see the folly in the massive and sudden ballooning of the re-mortgage market? A fair proportion of our economy has relied on this for 5 years at least. Not any more.

Neddie Seagoon

I'm self employed and my tax bill is due on 31st January. It is a figure approaching £20,000. I will be delighted to think not only will most of it disappear into a public sector black hole, but that some of it may be used to help some public sector apparatchik (for they are the only ones with certainty of employment and income) buy his new (no doubt imported)car.

My car is now eight years old, taxed at £380 and almost valueless. The reason I haven't bought a newer car (I would never buy brand new) may not be unconnected with a) the amount I am required to hand over to this government for squandering and b)the fact that my income is dependent on the profitability of my business; that is declining so I cannot risk either major expenditure from taxed income or buying on "credit" which is actually debt.

The only way that we will see the end to this recession is to create wealth, real wealth; that is providing goods and services that people actually want to buy. I haven't seen one action by this achieve nothing government which adds one additional pound to the nation's wealth.

EyeSee

Mandelson doesn't know how to run, support, encourage a business but more importantly, he doesn't care. You are just little people and can go fry, whilst he continues his sordid, corrupt little life, sponging off others. He is merely a pntomime dame stealing ice reams from children.

Forlornehope

The car industry is global. The number of cars made in Britain is, approximately, the same as the number sold. However, they are not the same cars. Only about 20% of the cars made in the UK are bought here. This plan, even if it works, can only have a very marginal effect on the "motor industry in Britain". Say it increases total demand by 20% that would increase demand on UK factories by only 4%, which is pretty insignificant in the present circumstances.

Tiberius

If the new car market is in such a dire state, can someone (THX? perhaps) tell me why personal contract hire rates have not softened from 2 years ago?

My present 2 year deal ends next month, but current prices do not reflect the supposed crisis in shifting new cars.

SW11

Just another example of Broon and his friends trying to re-start the break-neck consumption that had underpinned the record levels of government income. (eg £600bn in 2006, over double what Major had 96-97).

The carousel had to stop one day. Now it has.

I wonder if any bright spark knows the true, underlying, size of the UK economy, when exceptional house prices and record levels of consumer borrowing are stripped out?

Only then will we know how much the country can afford to spend on public services, without borrowing over £100bn per year for the next five years.

An old car driver

Maybe Mandy's proposal will work in another socialist micro-managed state, Cuba? They seem to hang on to their cars as we are learning to.

Isis

Tiberius, contract hire rates are dependent on the value the leasing company expect to realise from the sale of the car at end of term. You are paying to borrow the difference between purchase price and disposal price. Used prices are down. New prices are not down, they are steady, as the makers don't want to reduce list. They will discount though, and all of the discount comes off the new part of the equation, not the used part. So, seek out a discounted car, and you may find the two-year rate is less than the three-year. The makers won't usually give a decent discount on factory order, but will on cars in stock. If you don't get a good discount, go elsewhere. There will be good rates before end of 1st quarter 09, there's not much around this month.

Mike Spilligan

Having had a "war on the motorist" for the last ten years, is the Gov't now asking us to go into reverse?
The whole picture is confused: Please buy a car - we didn't mean what we said about you being one of the worst polluters; - or perhaps you could just tax it without actually driving it - but just a minute, that would deprive us of the VAT on petrol, and the duty on it, and the VAT on the duty; and so on.
Then to ask us to take a loan to buy the car - backed up by a loan (via tax) from a neighbour - what the.....
Those whom the gods .....

oldtimer

No doubt a shortage of credit is an issue for demand - but the weak to non-existent trade in value offered on your old car is also an issue.

Last summer I did look at trading in my old, low mileage, car either for new or an "old" demonstrator. The discounts offered were not that attractive and the trade-in value offered was risible. And I was a would be cash buyer.

As already remarked, however, family and business belt tightening is the biggest issue of all. Expect factory closures, product rationalisation and corporate consolidation as the world industry finally is forced to come to terms with the excess capacity it has lived with through the recent boom years.

To see just how demand now is, we need to cast our minds back to October/November when Volvo announced a drop in third quarter truck orders worldwide from c40,000 units to c150 units. You can`t buck the market!

Tiberius

Interesting points, Isis, thank you, and one would think the prices will have to be discounted before too much longer.

Richard

One of the impacts of the proposed, but now temporarily withdrawn, increase in the vehicle excise duty was to reduce the second hand value of my existing car. I therefore have to find more to fund a new car even if I was so inclined. Another example of the destruction of the economy by this wretched governmnet.

THX1138

Hi Tiberius -The reason that you're NOT seeing a softening in personal contract hire rates is because the the second hand value of the car or residual value (RV) have plummeted and I mean plummeted . The amount financed under a PCH ie the gap between the purchase price (even with current discounts) and the RV has grown but interest rate have fallen so it probably all just about cancels out hence similar rates from two years ago

The giant B2B leasing Co's are desperately trying to extend contact hire contracts into 2010 when they forecast a slight improvement in RV's. This is due to supply & demand factors as less second hand cars will be going through the auctions in 2010 due to such poor new car sales in the 2008 into 2009 rather than any real up turn in the economy 2010.

Two major suppliers in the B2B car leasing Co's including one owned by a major car manufacturer are closed to new business simply because they cannot raise finance to buy new vehicles to lease to their customers.

It's a perfect storm of depressed new vehicle sales, falling RV's and a very tough rationing of available credit.

I have know idea it Mandelson's plan will work what I can tell you though, is that it's very tough out here in the real world

Cynical Voter

Surely we want to stop buying cars - isn't that the idea behind green taxes ? If I buy a car I ruin the environment, so why subsidise it and tax it at the same time ?

Is this really just a game ? Why not let everyone write ff depreciation against tax and set VAT off against Income Tax ?

It seems bonkers to use the taxes levied on motorists to subiside them to buy cars - it is Chinese logic - to lend Westerners money to import more Chinese goods

Hysteria

Some interesting technical commentary on lease values - thanks chaps.!

It is madness to use our money to subsidise the purchase of a (foreign) vehicle which we will then tax.......

To the wider question of whether this is credit shortage or belt tightening - well - my reading of the runes is it's the latter - meaning we just got to take the medicine and deleverage, then hopefully build real wealth creating business moving forward.

This whole thing is like watching a train wreck in slow motion - compelling and horrifying ........

Bluebottle

Isn't it just a desparate attempt to create a new short term feelgood factor-the phenomenon previously based on ever increasing property values as we now know fuelled by unsustainable debt-which ensured the last 2 labour election victories?

"Here you are mate, make yourself feel better-go and buy a new car and while you're at it don't forget to vote Labour".

Tiberius

Thanks, THX, too, and I can well believe how tough it is in your trade. My father used to work for a muti dealership in Brum.

I have, in fact, got a decent deal this afternoon, which has only been made better because the lessor has agreed to waive the admin fee.

THX1138

Tiberius- Enjoy you're new car.

Actually I run a small direct marketing Co which employs four people,(so I'm a "liberal" wealth creator) my Co specializes in providing direct marketing & database services to the big leasing Co's.

The downturn has been okay for my business (so far,) although my clients are slashing marketing budgets my market specalization, knowledge, fanatical customer service & keen pricing has seen me pick up a little additional work at the expense of more general agencies.

My clients are hurting like mad so it probably won't last, in fact I'm being dragged into a meeting tomorrow to discuss pricing on a project kicking off in Q2. Wish me luck.

Tim Carpenter LPUK

If Gordon cut taxes, as in ending Income Tax, people might not need to borrow quite so much to buy a car. Even if it is second-hand, that would raise RVs and filter upwards to new car and lease sales.

Labour does not trust the individual to make their own decisions. No, the have to inject at the Corporate end and somehow try (and fail to) "manage" what people are able to do. It is their one of their biggest flaws.

Leave people alone. Stop taking money out of their pockets and then they might decide to spend. Overall, people will tend to mostly make good choices if left alone and the market not distorted.

Alas, this is beyond Labour, certainly beyond the Lib Dems and even the Tories. The only party that trusts the common sense of the individual is the Libertarian Party.

Pete

Hi Tiberius. You are correct when you say that there aren't a lot of good deals around. This month we have seen most manufacturers increase prices with Renault, Citroen, Vauxhall and Ford due for increases in early Feb (average Mondeo will rise by £1,200). We have seen RV changes, one example is VW Financial Services, dropping predicted RVs for VW product by around 12%. We have seen funders flee from the PCH market. Funders just are not lending for contract hire. I run a brokerage and our decline ratio is at 72%, this is not because customers have poor credit ratings, it is because of a change in underwriting criteria.