19 July 2010

 With virtually every area of the public sector about to be cut to pieces this autumn disposable income will surely fall as more and more people see their jobs cut. I see from the OECD that the UK’s savings rate has risen from 2.2% of disposable income 3-years ago to 6.4% this year.

It confirms that, with fears for their jobs, consumers are hoarding and not spending their money. They are saving it for a rainy day. I am not an economist so I couldn’t say if all this points to an economic death spiral but if I was involved in car retailing I would start taking it as a sign that very soon the car showroom will not be the place for the faint at heart.

There was some comfort from last week’s job figures showing that unemployment dropped (except amongst 16- to 17-year olds) but, on the other hand, the number of part-time workers reached a record as more people were forced into shorter hours.

Auto retailers do have the prospect of looking forward to a second half boost from the January VAT increase but, like scrappage, it will only be temporary, and generally, the unemployed and part-time workers don’t buy cars.

In the days when profit margins on cars were much higher than today, and dealerships only had salesmen who would handle the deal from greeting the customer to delivering the car, it all seemed to work. Today, there are so many people involved in the sales process – meeters and greeters, data gatherers, sales people, finance experts – I am wondering if it is time for some serious introspection by both manufacturers and their franchise networks.

COULD THE AMERICANS BE COMING?
In the last two years sterling has fallen 25% against the dollar and the UK has become very attractive to US investors, many of whom have been hoarding cash during the recession.

This year we have seen Kraft buy Cadbury and American Sugar Refining take-over the refinery operations of Tate & Lyle.

Is it likely that somebody such as Penske Automotive, which already owns the Sytner Group, could be looking at the value of sterling and considering making further in-roads into the UK?

Have a great week, both in and out of the showroom. If you have a story for us:
email barry@auto-retail.com

Barry Hook

Tags: Americans, Barry's Blog, unemployment