Having looked at the US' CARS scrappage schemes, investment-auto-motives now turns its attention to the UK government's version – VDS : the Vehicle Discount Scheme; started back in April.
Given that the UK has far smaller domestically owned production capacity - by far the greater of its 1.5m annual output Japanese & German owned with 75% exported – the immediate effect of domestic sales does not reach as far into the economic heartland; as it would have done decades ago. However, it was noted in Q109 that UK sales had dramatically dropped over 60% YoY given the credit crisis and something was to be done to slow the turmoil.
Hence, the Vehicle Discount Scheme that sees government subsidise new car buyers to the tune of up to £2,000 came into being soon after Lord Mandleson's awaited automotive industry announcement.
As with the US scheme, it has been touted a success given the slowed decline rate – to -17% by July YoY; though it could be argued that such the immediate sharp fall would have consequentially 'naturally' slowed.
Either way, Nissan, Toyota and Honda, the UK's mainstream car producers, have been able to re-start previously halted production shifts from Sunderland to Burnham to Swindon and elsewhere given the correlates to engine plants and regional/national suppliers.
But what is interesting is the consumer psychology and dynamic of car buying preference., with Ford (seemingly perennially) taking the top 2 sales spots with Fiesta and Focus – cars not made in the UK, but continued beneficiaries of the public's 'flight to safety'. Obviously given its UK manufacturing history, diminishing but strong popularity and massive advertising spend, Ford still holds a major “share of mind”. FMC enjoying the moment more than ever given GM and so Vauxhall's woes that for many with little auto-knowledge have overtones of the MG-Rover collapse and ensuing debacle.
By mid August the £330m the BIS scheme had induced 165,923 sales, many of which helped the July YtD figures showing a decline of -46% and August YtD figures of -40%; thus slowing the progressive rate of decline by approximately 14% & 20% respectively. Like the US, previously high inventory levels meant that there was much forecourt stock to be 'mopped-up', thus that there was not an immediate link-effect to UK manufacturing, much of that cautiously and temporarily expanded Japanese production being exported to Europe (given France, Germany and Italy's own incentive schemes) and elsewhere.
As mentioned, what is interesting is the difference between UK and US consumers in their VDS-CARS scheme choices. Whilst Ford has done well by virtue of GM and Chrysler 'dis-creditation' but the typical American buyer chose Toyota Corolla & Honda Civic as their #1 & #2 choices, so maintaining the decade long trend toward Japanese (and now S.Korean) car popularity. That same Japanese popularity has been happening in the UK, but far more slowly given the attachment to Ford and Vauxhall, and of course the level of smaller regional car competition from VW, PSA, FIAT, BMW-Mini & Daimler-Smart.
Even so, unless the UK buyer is an inhabitant of the North-East, East-Midlands or West with local production familiarity, it seems that concerns of their car-buying effect at a national economy level is lost or of little consequence. Whilst investment-auto-motives abhors protectionism writ large or small (as we saw with the lambasted “Buy American” campaign) it is interesting to note that Brits do not back their real-world national auto-industry. Yes it is Japanese (and including JLR Indian) owned, but such expenditure is still critical to the regional and national economy and has been part of those regions successful growth stories in the last 20+ years.
And that is far more than 'just a shame' because those Japanese companies and their associated suppliers are the key for the UK's motor industry into the future. Nissan, Toyota-Daihatsu and Honda's technological capabilities in small cars (esp 660cc Kei-cars), hybrid powertrains, lean-burn petrol & diesel engines and affiliated owned or JV battery knowledge is the leading edge of R&D development and so tomorrow's cars, and by virtue tomorrow's auto-industry.
Importantly, the ability to 'trickle-down' and 'infuse' such R&D solutions into Britain's luxury car sector – from the highs of Rolls-Royce, Bentley & McLaren down to Jaguar Land-Rover – means that the UK can leverage such knowledge. And moreover, the affordable integration of OTS (off the shelf) clean-tech will be critical for the niche UK industry players that so heavily rely on farmed-out powertrain, drivetrain and electronic systems.
The UK isn't the US where its niche vehicle builders rely upon generic GM (often Corvette) whole platforms. Its strength lies in its marque specific engineering specialisation and accordant USP, from Morgan to Bristol to Noble to Ginetta et al.
Thus investment-auto-motives believes that if the UK auto-sector (and nation) is to prosper as whole – and not simply buoy the retail sector with VDS – the government must subtly demonstrate just how critical the industry's inter-links truly are between the broad scope of auto-related companies, and critically the “Giant (progressive) Foreigners” and “Dwarf (adaptive) Locals”
As stated previously, investment-auto-motives is not an advocate of short-termist stimulus packages that run to dead-ends. But the difference between the UK and US 'appropriations' is made clear given the very different natures of their respective 'domestic' industries.
The trouble is that we suspect the present government has failed to truly grasp the complexities of subject at hand. You don't just simply pour medicine down a sickly patient's neck expecting a miraculous cure, you simultaneously provide the raison d'etre to re-invigourate.
