Hello John, Got a New Motor?
This is an extended version of my recent Birmingham Post column, updated for full 2012 car registration figures.
'Hello John! Got a new motor?' Alexei Sayle once asked. Overall car sales figures for 2012 suggest that John here in the UK may well indeed have bought a new motor, but that Francois, Christos and Ricardo on the continent probably didn't.
In fact, Britain seems likely to be the only major car market that expanded in 2012 in the European Union. New car sales in the UK rose by 5.3% overall in 2012. That's in contrast to a likely 9 or 10% slump in European sales in 2012.
Over 2012 as a whole, over 2m new cars were sold in the UK, the best year since 2008. But despite the recovery it's worth noting that this is still low by recent historical standards, and sales levels are expected to remain 15% below pre-recession highs for some time. So yes, there has been encouraging growth in UK car sales, but let's put it into perspective.
Nevertheless, let's keep our fingers crossed that the uplift in 2012 UK sales reflects more confidence on the part of consumers like John and might be the harbinger of better economic news for 2013. I hope so; we certainly need it.
The Society of Motor Manufacturers and Traders' chief executive Paul Everitt is correct in noting that the upward trend has been driven by private retail customers rather than business customers. Some great deals on price and finance packages can be found - so it's a very good time to buy if you are a private customer able to access credit. That means heavy discounting by many auto firms, which is impacting on their margins.
And big firms like GM are also sending more cars to the UK, as continental consumers cut back on buying 'big ticket' items like cars. With sales on the continent falling to their worst levels in over 15 years, firms are producing far more cars than they can sell and are offloading excess stock on to the UK market where they can at least shift it, even if they have to discount heavily.
What has also helped them in this regard is the appreciation of sterling against the euro over 2012, as this makes exporting cars to the UK more profitable.
The positive 2012 sales figures in the UK follow on from good news on production figures which showed UK car production up 9% from January to November in 2012 (full year production figures are still awaited).
Encouragingly, over 80% of cars produced in the UK are exported, with 55% of these exports going to countries beyond eurozone. Premium producers in the UK, in particular, have enjoyed huge success in overseas markets - think of JLR's growth in sales in China. But note as well Nissan's success in selling Qashqais in countries like Russia.
In stark contrast, European car sales are down in most countries. Much of this was been driven by a collapse in the periphery: in Italy sales were down by 20% for 2012 as a whole, and in Spain by 13%. Figures for Greece and Portugal for 2012 are also likely to be dismal. It's 'Carmaggedon' as Fiat's boss Sergio Marchionne put it succinctly.
But during 2012, the malaise spread to the North, with France seeing car sales down by 14% for 2012 as a whole, and even Germany endured a fall of 3% over 2012. What was a periphery crisis has now spread to the core of Europe, with a toxic mix of eurozone crisis, austerity and recession forcing down sales - which are now down by 20% on pre-recession peaks.
Factor in some 25% over-capacity in the industry even before this most recent downturn, and you get some idea of the intense pressure being felt by the 'squeezed middle' of the industry (Fiat, GM, Peugeot, Renault, and Ford). It's no wonder that Peugeot, GM and Ford have all announced plant closures so far.
Peugeot Citroën, for example, has been hit by falling sales in its home market as well as the periphery and has announced plans to close one plant and lay off some 10,000 workers. It recently needed a €7bn loan guarantee from the government for its finance arm - effectively a bailout. I expect more plant closures from other firms to come.
Not surprisingly, most European auto firms are scrambling for sales, using discounts and special offers to keep production lines going, in so doing hitting profits. Opel, Peugeot, Ford and Fiat continue to bleed red ink, with Renault (which benefits from its links with Nissan and more sales outside of Europe) now also being squeezed. Some analysts forecast the much-anticipated grand restructuring of the European auto industry, while others shrug and expect it to muddle on as usual.
Only the German firms of Volkswagen, BMW and Daimler are now making serious money. The VW juggernaut in particular keep chugging along, churning out new models and taking market share in Europe from rivals, its share up to almost 24% in the first half of 2012. This strength is partly powered by high profits from its Chinese operations, a point which has irked Fiat CEO Marchionne. But even it saw sales of its core brand down by 25% in France, 15% in Spain and 36% in Italy.
Meanwhile, as I've noted before, the British car industry has been partly sheltered from the eurozone crisis by its strong premium car industry, with the likes of Jaguar Land Rover, Bentley and Mini benefiting from surging demand in emerging markets such as China.
And Nissan, Toyota and Honda, mass-market producers who have a significant presence in the UK, have also avoided the worst of the downturn so far because they are relative newcomers to the European market without huge overcapacity.
But none of these firms can be immune to the European downturn taking place.
While the UK auto industry has done well of late, the European storm is starting to be felt here. Honda has already announced 4-day a week working for some workers, GM has closed its Vauxhall plants at Ellesmere Port and Luton for a week and has gone to one shift at Luton, and Ford has closed its last remaining UK assembly plant.
Despite the recent renaissance of the UK car industry (which has raised issues for the supply chain in keeping up with assembly growth), if the European slowdown continues then at some point the government here may need to start thinking more creatively in terms of an industrial policy that puts a floor under capacity here. Think, for example, of the part-time wage subsidies that exist in Germany (and which have already been activated there in the case of GM).
Despite the success here in the UK, dark clouds are looming on the European horizon.
Professor David Bailey works at Coventry University Business School