By Jonathan Buck
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- U.K. new-car registrations in October surged 32% year-on-year, driven by scrapping incentives and a pickup in demand from the fleet and business sectors.
Registrations, a measure of sales, last month soared to 168,942 vehicles, the biggest monthly rise since government-backed scrapping incentives were introduced in mid-May and 3.9% ahead of average October volumes in the past 10 years of 162,658 vehicles.
The Society for Motor Manufacturers and Traders, an industry group that compiles the data, attributed more than 20 percentage points of the gain to scrappage incentives, which offer car owners GBP2,000 in discounts when they scrap aging gas guzzlers and buy new, fuel-efficient vehicles. The cost of the discount is shared equally by the government and car makers.
Additional demand came from motorists who bought new vehicles before a hike in the level of value-added tax. The government cut VAT from 17.5% to 15% at the start of December last year to help lift the U.K. economy. It is due to revert to the higher rate at the end of 2009.
"Encouragingly, there has also been an increase in demand in the fleet and business sectors, which will be critical in sustaining recovery next year," said SMMT Chief Executive Paul Everitt in a statement. Fleet registrations last month fell 2% to 72,954 vehicles from 74,445 a year ago, while business registrations climbed 12% to 6,456 vehicles from 5,759. Fleet registrations in September were down 14% while those in the business sector were off 11%.
Analysts fear that the end of the scrappage plan, the reversion of VAT to its standard rate and the possible introduction of a showroom tax of GBP950 per vehicle next year could create what U.K. manufacturing leader at consultancy Deloitte, David Raistrick, called a perfect storm.
"At a time when the industry is showing promising signs of recovery, it is important the sector does not lose sight of the challenges ahead in 2010," he said.
Registrations in the U.K. and other major European markets next year are widely expected to slump after the expiration of scrapping incentives, which have revived demand after a collapse in sales at the end of 2008.
New-car registrations in Germany, which implemented one of the most generous scrappage initiatives, in October climbed 24% year-on-year, while those in France jumped 20%. They were up 16% in Italy and 26% in Spain.
In the U.K., registrations in the first 10 months of the year were down 12% on the same period in 2008 at 1.69 million vehicles. Strong demand is expected to continue in the final two months of 2009, with full-year registrations expected to reach 1.93 million vehicles, about 200,000 fewer than last year.
Ford Motor Co.'s (F) Fiesta was the best-selling model in October, with the Focus in third spot. The company's dominant share of the U.K. market last month slipped to 13.9% from 16.6% a year ago despite a 10% increase in sales.
Vauxhall, General Motors Co.'s U.K. brand, saw its market share in October skid to 11.5% from 15.1%. Its registrations were virtually flat year-on-year despite the uncertainty over the ownership of the company's European operation. Vauxhall's Astra was the second-best seller last month after the Fiesta, and its Corsa model was in fourth place.
-By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 8237; jonathan.buck@dowjones.com