Across Europe demand for new vehicles has crashed, yet the British market is racing ahead of its neighbours. What is fuelling this car-buying boom?
Here is a very strange statistic: new car registrations in Britain rose by 12.1% for the 19th consecutive month in September. Britain is in the grip of a new car boom. What makes this particularly bizarre is that we are also witnessing a European car crash. EU sales slumped to a 20-year low in the first half of 2013. New car registrations in France are forecast to fall by 8% this year, sales in Italy have been plummeting for two years and sales are even falling in Germany. While 403,136 new cars were registered in Britain last month – the highest total for 66 months – just 45,175 new cars were sold in Spain.
Britain's great new-car buy seems to defy both logic and personal experience. Car use in London has been in decline for years and yet even where I live in Norfolk, where people depend on their cars, I don't know anyone who recently visited a dealership and unpeeled £17,395 in notes for a Ford Focus Edge 1.6. Seventeen grand for a Ford Focus! Who can afford that? And if you can, why would you? Some new cars (not the Focus) lose 50% of their value 24 hours after being driven out of the showroom.
Last month I paid £3,000 to a secondhand car dealer for a 10-year-old VW Touran. It is a frugal diesel, it is recognisably modern, and its doors close with that reassuring Germanic thud. It is the best car I've ever owned.
Unlike the Touran, I'm not recognisably modern, however, because I've never heard of PCP. Car-industry experts offer a range of interesting reasons for Britain bucking the European car crash but the most striking is the rise of the personal contract purchase. In 2006, about 45% of new cars in Britain were bought on "finance" (loans, leases and PCP). In 2013 so far, 74% have been brought on finance, according to the Finance and Leasing Association. (This figure doesn't include personal loans from high-street providers.) The product behind this increase is PCP.
"If you go into a showroom and look at the sticker-price of the car, it will frighten you to death," says John Tordoff, chief executive of JCT600, a Yorkshire-based car retailer that clocked up a 66% increase in year-on-year new-car sales last month. "Then you look down at the bigger sticker on the door and it says: buy this car for £199 a month.' There might not be many people with £20,000 to spend but there are a lot of people with £199 a month to spend."
PCP is a flexible form of hire purchase, a bit like part-buy, part-rent home-buying schemes. Customers pay a deposit for a new car and then a monthly sum over a fixed term, usually three years, which covers interest and the depreciation of the car. Unlike hire purchase, customers are not committed to buy the car at the end of the contract; unlike leasing, which is a rental agreement, they have equity in the car and can buy it outright by paying the "guaranteed future value" of the vehicle agreed at the start of the term. What usually happens is the customer uses the equity in their car for another deposit and starts another three-year deal with the same dealer. Dealers love it because it encourages repeat business and consumers appear unconcerned about fully owning a car.
"Young people are used to mobile phone deals and iPads on a contract. People are used to renting now," says Paul Harrison, head of motor finance at the FLA. "In an era where everyone's used to paying £50 a month for their Sky bill, consistency is the word. Dealers will throw in service and maintenance packages, warranties and insurance so you can get your total cost of motoring down to one payment each month. That consistency is something we all look for now."
I'm old-fashioned and suspicious of this kind of finance but it is hard to see a catch in well-priced PCP when interest rates are low: the monthly cost is effectively the consumer paying for the car's depreciation so there's no shocking loss on leaving the showroom. There is a risk of fairly punitive payments if a driver exceeds their mileage allowance but if the customer gets into financial difficulties there is at least an asset to recover, so they lose their car rather than other more precious possessions.
But surely a secondhand car is cheaper? Motoring journalist Quentin Willson has been extolling the virtues of secondhand cars for 30 years. Willson rhapsodises about his 14-year-old Mercedes convertible, which cost £2,500 secondhand, but has never known new cars to be so cheap. "It's this bizarre situation where it's cheaper to buy yourself a new little city car with a three-year warranty than run an old VW Golf. A Skoda Citigo for £70 a month. What's not to love?" For the modern motorist, a part-bought, part-rented PCP car you change every three-years is "guilt-free motoring" with none of the stress of buying or maintaining a secondhand car. Economical new vehicles are another reason for the new car boom. Drivers are trading in 10-year-old cars that do 40mpg for new diesels that exceed 70mpg (for sceptics of laboratory fuel-economy figures, What Car? found the Kia Rio and Citroen C3 both exceeded 70mpg in real-world tests).
The coalition will love talk of booming car sales showing confident, consumer-led Britain accelerating out of the recession before its neighbours, but Willson makes an interesting point. European makers are still churning out cars that most Europeans are not buying, so these vehicles are shipped to Britain. "It costs billions to close factories so car manufacturers have no choice but to find a market that could be made more active. They put as many incentives as they could behind these cars to stimulate activity in the UK. It is just to keep Stuttgart, Munich and Barcelona and all those massive factories going. It doesn't represent an economic recovery in the UK, it's just a massive marketing stimulus." He predicts the current cheap deals – and high sales – won't last.
Other industry insiders identify other factors driving the British car boom. Britain's buoyant car manufacturers export the vast majority of their cars but successes such as the Range Rover Evoque and the Nissan Qashqai can only help sales here (one in seven new registrations are built in Britain). Chas Hallett, editor in chief of What Car?, says many drivers have bought a new car with PPI compensation payouts (a typical payout of £3,000 covers a deposit for a car). Another factor is the company car market, which is unusually large in Britain and accounts for half of all new car sales.
But what does this boom say about Britain's changing relationship with the car? Are we one of the most car-obsessed nations in the world? Or, paradoxically, do these figures presage a diminishing love for cars? As everyone in the industry acknowledges, the 19-month rise is a correction: even if the predicted 2.2m new cars are registered in 2013, it is still 380,000 less than the peak of 2.58m in 2003. And, oddly, given our moans about congestion, car use was falling – particularly among the young – before the recession struck. Some academics believe that mileage per capita has peaked in Britain: like peak oil, there is "peak car" and the car is trundling down a long hill towards senescence.
This is an attractive theory to environmentalists and haters of traffic jams but it might be wishful thinking. A study commissioned by rail and road groups including the Independent Transport Commission and the RAC Foundation last year found that, while car traffic levels have been falling in London since 1998, there is a continuing growth in non-company car use outside London among the over 30s: so for 70% of the British population, there has been no "peak car" effect.
Luca Lytton, research manager at the RAC Foundation, says young people are using cars less but argues this is because of economic barriers (mainly the astronomical cost of insurance for young people) rather than a cultural turning-away from the car. The RAC believes that demographic changes will ensure the number of motorists will continue to increase in Britain: if the population rises by 10 million by 2035, as the government suggests, the working-age immigrants and fit, retired, relatively affluent baby-boomers behind these figures are likely to drive.
It is counterintuitive to claim that soaring sales show a declining influence of the car on our lives, but the way we buy motor vehicles does reflect a transformation of our relationship with them. "Car culture is changing, particularly among younger people being increasingly presented with alternatives like car [share] clubs," says Paul Nieuwenhuis of Cardiff Business School. He passed his test in the 1970s. "In my generation cars were a very popular pursuit. When we bought a car we could fix it ourselves. Fixing a modern car is quite challenging. That hands-on experience of working with a car has gone. There's less emotional attachment and there's not as deep a relationship as we had with our cars." We are emasculated and estranged from the car by its transformation from oily mechanical object to computer-controlled being.
Willson agrees. While he welcomes the new car boom putting safer and more environmentally-friendly cars on the road, he sees buying a car as if it was a mobile phone as a sign of a growing car illiteracy. "Most people treat their cars like a peasant treats a donkey. There's a vast majority of consumers who are car illiterate and can't maintain them and throw them away like a handkerchief. How often do you see a car in the driveway being washed or with the bonnet up? We treat them like a washing machine or tumble drier. We've got a generation of kids who don't want to learn to drive and people who see the car as a mobility solution."
When I tell Hallett at What Car? about my secondhand VW, he praises its spaciousness. "But your gearbox could drop out tomorrow and it's worthless," he says. "If you bought a new car for £200 a month with a three-year warranty and lock yourself into that three-year cycle, your car will always be covered."
Seeking reassurance, I phone Andy Seddon, owner of Severalls MOT Centre in Colchester and the man who sold me my Touran. A car romantic, Seddon is convinced that Britain is still a nation of car lovers, complete with popular clubs for Subaru Impreza owners, Minis and Fiat 500s, and cult car shows such as Wheeler Dealers.
So, new versus secondhand? "If I had the money or the credit, I would buy a brand new car on lease for three years," he says. "Free insurance, the whole service package and you hand the keys back after three years and get a new one. That would be perfect. That's the way it should really be."
I'm shocked. Come on Andy, sell me the concept of a secondhand car! After a bit of nudging, Seddon agrees that prices are low and business is brisk. Rising new car sales means that the market is awash with secondhand bargains. British Car Auctions recorded 7.1m used car sales in 2012, outpacing new-car sales by rising 6.4% and returning to pre-recession levels. Apart from my Touran, Seddon recently sold a 57-plate Vauxhall Vectra CDTi with "full history and full leather" for £3,250. "That's a lotta, lotta car for little money," he purrs. And, as he points out, post-recession, many people no longer have the credit rating to acquire finance for a new car.
Perhaps Britain's resurgent love for new cars is a passionless affair. Are drivers buying risk-free motors to pootle from A to B in – without using much fuel or requiring much maintenance – with little more enthusiasm than they would have for an everyday kitchen appliance?
"If that was exactly the case, we wouldn't have the massive peaks in September and March when the number plates change," says Keith Lewis of the Society of Motor Manufacturers and Traders. "Although the emotional attachment might not be the same as it was, they still want the feelgood factor of a new car."
Hallett insists that Britain still rivals the US and Japan as the most motor-obsessed nation on the planet. "A car is still an emotional purchase, it's still something we attach emotional value to," he argues. "The UK is actually the most brand-sensitive nation on earth, as far as cars are concerned. Pretty much everyone can tell you the make of their car but I don't know the make and model of my refrigerator. I speak at a lot of schools and children love cars, Top Gear has six million viewers every Sunday and most people need cars. There's a conceit among the London-based media that no one needs a car. Try telling that to a single mother in Leicester where there is one bus an hour."
Reported by guardian.co.uk 25 minutes ago.