BMI Research: UK Autos Report.

Based on the competitiveness of its manufacturing industry and regulatory environment, the UK leads BMI's Business Environment Ratings for the auto industry in Europe this quarter. However, how long the UK will be able to sustain this position will depend significantly on the regulatory environment in the country. Although the new prime minister, David Cameron, has said commitment to manufacturing is one of the government's main priorities, the business secretary, Vince Cable, has said the new government is unlikely to continue providing direct support for carmakers, except to those in 'exceptional circumstances'. Given that carmakers already face the challenge of rising raw material prices and uncertain currency movements, we stress that the new government will have to ensure that the support to carmakers is withdrawn only after some amount of stability has returned to the market. Figures for the first seven months of this year show that new car sales increased 15.1% year-on-year (y-o-y), to 1.24mn units, but a 13.2% y-o-y fall in July, has cast doubts on whether the market could end 2010 on a positive note. BMI forecasts new car sales will reach 1.98mn units by the end 2010, down nearly 1% compared with last year. We expect more pronounced growth from 2011 when we expect the market to grow nearly 4% y-o-y, to sales of 2.31mn units. Although we expect the economy to return to growth averaging 2.3% y-o-y in 2011, high vehicle ownership levels will limit any significant growth in the passenger car segment. This will limit car sales to 2.3mn units by the end of 2014, only just surpassing the pre-crisis levels of 2008. Production has recovered from the sharp drop last year, rising 41.9% y-o-y, to 808,844 units, in 7M10. However, BMI sticks to its view that output in 2010 is likely to remain well below pre-crisis levels, reaching 1.36mn units by the end of the year. Meanwhile, our expectations of a much stronger recovery in production from 2011 are being weakened by widespread fiscal consolidation, weak bank lending and internal devaluations in the eurozone. Although we expect growth thereafter, we expect output to reach 1.60mn units by the end of 2014, not yet recovering to the pre-crisis level of 1.65mn units produced in 2008. Ford Motor and Vauxhall continue to lead the market, with the former's Fiesta and Focus remaining the best selling models so far this year. Much of the sales growth this year is down to the scrappage scheme, and consumers have shown a preference for smaller low cost cars. Hyundai Motor, Ford, Kia Motors and Volkswagen emerged as the biggest beneficiaries of the incentive, together taking nearly 40% of the total 392,466 vehicles sold under the scheme between January and July this year. [ABSTRACT FROM AUTHOR]