Further to the pre-Christmas murmurs and meetings, large sections of the UK Auto Industry are calling for the government's assistance to ensure that liquidity-easing policies and measures are enacted. Done so to obviously generate a liquidity trickle-down through B2B & B2C streams which theoretically should re-attract deserting car-buyers.
The SMMT's 2008 new UK registrations show a sharp decline down over 11% YoY to 2.13m units, and now predicts that the 2009 total will be the worst on record for 16 years, since the 1992 recession. Unfortunately, the roots of that recession weren't as deep or engrained as the circumstances seen today, and with jobless figures mounting to levels unseen for 4 generations, the real consumer demand is very very very hard to quantify.
Paul Evirett, the SMMT's CEO, states that “Further action to ease access to finance and credit across the economy is essential if long-term damage to valuable industrial capability is to be avoided”, duty-bound to make such an appeal on behalf of his members and the automotive sector at large.
But, as we see with the commercial and public housing mortgage market, much of the made-available liquidity is being drip-fed into the market by the banks, who are essentially obliged to both buoy their own balance sheets in these very uncertain times and focus lending around low-risk parties.
And of course that is the nub of the problem that faces the UK's car market, largely dependent on consumer whimsy since cars have, for the most part, been fashion and status symbols as opposed to purely rational mobility devices.
Like the US, though not quite as bad, the UK's car market was inflated through the use of more and more lax credit terms, many of the deals being offered being essentially value-destructive in the long term, as we see today, based upon then short-term 'on-paper' gains.
Today's credit climate has 'about-turned' that lending attitude 180 degrees. As now witnessed in the UK mortgage banking sector, lenders are rightly judiciously delineating and segmenting the market as a consequence of their own risk-management. Today setting out their stalls through altered practice in their Terms & Conditions and tiering their SVR and Fixed mortgage rates relative to the level of risk-exposure - preferential lending offers given to those with hefty down-payments and flawless credit histories.
By rights, the same lending philosophy should be applied to all consumer durables including cars and have a parallel assertion to vehicles used in the commercial realm, spanning everything from a firm's functional vehicle assets such as vans, trucks and sales fleet vehicles through to management's car-park automotive heir achy.
Lending is generally seen as core to economic revival, and a willingness to at least appear to do so decisively won Gordon Brown pundit applaud in December 07. But as the Conservatives point out, economic priming through lending assisted by other initiatives such as 'quantitative easing” (printing money) must be taken with great caution. Inappropriate, over-reactive stimulation (partly attributed to being seen doing something) could well exacerbate the problem, its apparent assistance doing little more than creating a false economic bottom that will create greater future economic flux/volatility instead of allowing free-market forces to bring about a true and sound economic bottom from which long-term value creation can be garnered.
And this is the quandary that the UK government and its economic and industrial advisors must attend to, the sooner the better. And of course within that intra-national quandary is the question of how best to deal with and leverage the short, mid and horizon issues the UK automotive industry faces.
As Nissan retrenches 1,200 jobs in Tyne and Wear, Honda extends temporary factory closures and cancels renewal of outsourcing contracts and Jaguar-Land Rover's parent TATA is forced to appeal to the Indian public for needed cash injection, it must be recognised that the problems facing the UK auto-industry, and many auto-sectors in the 'advanced nations', it is a hard pill to swallow that immediate woes will not be solved by simply by opening the flood-gates to re-circulate credit.
Given that easy credit was the lifeline the industry survived upon for the last decade it is an easy assumption to make, but to do so would be irresponsible, giving 'life-support' to antiquated business models. At worst it could lead to yet another credit derived catastrophe in the not too distant future, or at best create the type of minimal growth, 'virtually suspended', economy seen in Japan over the last 15 years.
Yes, credit is a vital part of the economy, but as is now painfully recognised, it must be used with great acumen and foresight at a time when the economic engine (the powerhouse of wealth) and economic gearbox (the relayer of wealth) are effectively being 'reconditioned'. It must be carefully apportioned, given to those stable and sound enterprises which offer real long-term development, wealth generation and wealth dispersion prospects.
For the likes of Brown, Mandleson, the Treasury, BoE and 'devil's advocate' Conservatives, the onus perhaps more than ever since WW2 is upon responsible structuring and fiscal support of the inter-dependent banking-industrial-consumer economies. Since, for far too long the cart (of credit) was put put before the horse (of reason).
