Thursday 5 January 2017

Car Buying: Cost Warning Adds To Fears Of 2017 Price Rise Gloom


Car prices will start rising within few weeks following the slump in the pound, the industry's trade body has warned.

The comments, by the head of the Society of Motor Manufacturers and Traders (SMMT) in an interview with Sky News, add to fears of growing pressure on household budgets already facing rising fuel and retail costs.

Next used a Christmas trading statement to warn on Wednesday that its prices were on course to rise by 5%.

Meanwhile, Bank of England chief economist Andy Haldane said rising prices may see consumers "throttle back" on spending - a key component of economic growth, which has partly been fuelled by rising household debt.

SMMT chief executive Mike Hawes said new car customers would see increases in the first quarter of the year, with rises of 2-3% over coming months.

It would mean a hike of up to about £400 on a new Ford Fiesta Zetec, which currently sells for just over £13,500.

That is in addition to an earlier warning that motorists face paying £1,500 more for imported cars when the UK leaves the EU if the divorce deal results in new tariffs.

Mr Hawes made the latest comments about an imminent price hike as the SMMT published new car registration figures showing a record number vehicles, almost 2.7 million, left showrooms in 2016.

That was 2.2% up on 2015 and the fifth consecutive year of growth, though 2017 is expected to see a fall in sales.

Mr Hawes said that the private market for new cars had declined over 2016 but the market had been bolstered by strong fleet demand.

Meanwhile, diesel cars saw a record number of new car registrations - climbing to almost 1.3 million - despite the fall-out from the Volkswagen emissions scandal.

The SMMT figures showed VW new car sales in the UK fell 7.5% last year on 2015's total.

UK car manufacturing has also been strong, with 2016 figures to be published later this month as the industry aims to hit the 1972 record for number of cars produced.

But it now faces a "double-edged sword" from the collapse in the pound - which has fallen by about 18% against the dollar since June's Brexit vote.

There is a benefit because 80% of cars produced in the UK are exported and the fall in sterling makes them cheaper for overseas buyers.

But 60% of parts that go into cars come from abroad, so the cost of these has gone up.

Meanwhile, more than 80% of cars sold in the UK are imported.

"Ultimately, a fall in sterling is going to flow through to an increase in pricing, probably of the magnitude of two or three per cent over the coming months," Mr Hawes said.

"I think we will see increasing prices certainly in the first quarter."

Mr Hawes said it was too difficult to pencil in forecasts after that.

He added that the industry wanted to remain in the customs union, which would mean tariff-free trade as well as other "clear benefits" such as moving cars and parts quickly.

Additional costs would make it much harder to compete with other plants in Europe.

The SMMT warned in November that new tariffs, should the UK go for a "hard Brexit" split from the single market, could add billions to both import and export costs resulting in rising prices.



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