Fleet News

Jittery economy set to squeeze revenues

Ali Al-Saffar, chief automotive analyst, Economist Intelligence Unit

The automotive industry is one of the most prone to turns in the economic cycle.

When times are hard and consumer con-fidence is low, people tend to put off large purchases until they feel more certain of their short and medium-term prospects.

The automotive sector in the UK is already feeling the impact of weak GDP growth this year.

In September, new car registration was 0.8% lower than at the same time last year – the Society of Motor Manufacturers and Traders predicts that for the year as a whole there will be a 5% dip in passenger car registrations, hit by low consumer and business confidence and constrained access to credit by many .

Worryingly, the outlook for next year also looks weak.

Unemployment is expected to remain high against a backdrop of sluggish demand and continued fiscal tightening and, crucially, credit availability will remain constrained.

Meanwhile, real household disposable incomes will continue to be squeezed by falling real wages, high inflation and a rising tax burden.

Additional downside risk to the sector also comes in the form of the jittery global economy, where the demand outlook remains weak, particularly in the OECD.

Any further shocks to the financial system which, given the escalating euro zone problems, look increasingly likely, will have negative repercussions for car sales in the UK.

The overall economic picture is likely to have a commensurate impact on car fleets across the country.

Squeezed revenue streams and declining profits will mean that many companies will look towards prolonging the lifetime of their existing fleets, rather than incurring the large costs of purchasing entirely new ones.

More encouragingly, economic growth is expected to increase in 2013-15 and with it, demand for cars is forecast to increase to an average of 1.3% a year, higher than the long-term average growth increase over the last decade.

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