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Mon
Jun 23 2008

Showroom meltdown

James Ruppert

So maybe we’re not doomed after all. Certainly not if you believe the bits of the media that are extrapolating strong sales on the high street into a total avoidance of the recession that previously seemed inevitable.

Car forecourt Well, sorry to be the gloomy old voice of reason - but a quick trip to your local car showroom will demonstrate that one bit of the economy is already being ravaged by the early effects of the dreaded ‘R’-word.

Yes, punters may still be happy to splash cash on barbeques and garden furniture (quite possibly instead of taking a holiday in the actual sun), but after a tour around some of my local dealers I can report that the car trade is going into hibernation.

Traders are telling me that they’re keeping their money in the bank rather than buying stock. One admitted that he hadn’t bothered going down to the auctions for weeks. He said that price expectations are still high but that nothing much is happening: even diddy superminis that do 45-plus mpg aren’t selling that well. The problem is that most buyers come with part exchanges, which will be equally hard to shift. That means either insultingly low offers or polite refusals, gumming the whole system up.

Traders with garages attached are finding they still have occupied ramps and so class themselves as busy – even if they’re not being rushed off their steel toe-capped feet. Indeed these small operations stand a far better chance of surviving, whether punters opt to mend their existing car or trade out of it.

At the other end of the market, things look positively stormy. As I noted a few weeks ago, showrooms are starting to close. Meanwhile share prices for the big PLC dealer groups have taken a dive, and a receptionist in a gleaming franchise admitted to me that people just aren’t coming in to place orders for the new reg plate.

Sorry to be the harbinger of doom, but on the current showing things are going to get far worse before they get better.

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About James Ruppert

Used to sell BMWs, but he's no yuppie; has a '64 Mini Cooper in his garage and a '57 BSA Bantam in his house. Has bought and sold hundreds of used cars, and he isn't finished yet.

Comments

loather June 23, 2008 12:10 PM

James, just a couple of points.

The people who brought the news last week that retail sales had increased at their fastest rate since records began are the same ones(Office for National Stats.) who swear blind each month that inflation(CPI) oscillates around the 2 to 3% mark. Wouldn't be half as a insulting if their salaries weren't paid by the taxpayer.

Just as a for instance. Did you know that ONS staisticians use a 80/20 split for petrol to diesel to weight the price rises of road fuel? Can you guess why? Diesel in the last year has risen far faster than petrol. Petrol to diesel usage in the UK at consumer level, i.e. forecourts, is roughly 50/50. By over-estimating the portion of petrol usage the dramatic rise in diesel price can be suppressed in overall inflation figures. Neat huh?

Have written on one of your blogs earlier this year that the UK is heading for a major slump. In the time since I am but more convinced. How else could it be when a small group of obscenely rich individuals are intent on destroying the living standards of the vast majority. There is no oil shortage. There is more than adequate production and supply. Tankers are at sea acting as floating storage. US gasoline demand is off 5% or more since last year. The Americans wish to curb the traders - speculators/hedge funds/spivs - at London's International Commodity Exchange, who can speculate on margin in West Texas crude as well as Brent North Sea. Surprise, surprise, the FSA have decided to turn down the Americans' wish. We are all being literally held over a barrel. It's the biggest run up in a speculative bubble since, well, the last great bubble, housing, and now food too. Of course none of this gets reported in the mainstream media, especially the tax paid for BBC. Ha, ha! What a beserk world we live in. Blame the arabs, the thieving sheikhs. Blame anyone except the culprits. Why? They own the self same media.

Just try to remember one thing in all this. There is no oil shortage and(okay two things) the well-head cost of crude is still around the $10/barrel mark for Saudi oil. Who in god's name is creaming off $130 a barrel, at 80 million barrels a day? Ten billion dollars plus a day! That's where your economy went folks.

Lastly, looking at the Germany May registration figures it is amazing to see out of the overall 6% down year on year figure who is thriving and who is falling. For instance the BMW 1 series is 132% up YoY, whilst the 3 series is down 43%. Ford appear to be doing well: the Mondeo is up 197% YoY and the Focus registered a small increase(5%). One of the most amazing, to me at least, is the decline of the relatively new TT(Audi), down 30%, and the massive success of the newer A5, up 746%! Looks like the A5 has cannibalised sales of the effeminate? TT. Read the full figures here:

www.autobild.de/.../hitliste-mai-2008_723208.html

Why can't the SMMT or some media organisation publish the corresponding UK figures in the public domain? I cannot see them.

nom de plum June 23, 2008 4:00 PM

FFS.

Blame the civil servants then. As a matter of fact, ONS merely reports what it is tasked to report.

Your beef should be with the government because what you allude to is an example of the politicisation of the civil service. Understand that and you go some way to understanding some of the issues you, JJB and others go on about.

James Ruppert June 23, 2008 4:54 PM

I am fully aware that there is no real shortage of oil and that whole cabal of speculators and government types, but that doesn't help us much. Stuff is more expensive and taxed excessively and that is really slowing down retail business. Governments love interfering and there's part of the problem...I won't go on.

loather June 23, 2008 5:45 PM

James,

what do you propose? - 'Stuff is more expensive and taxed excessively and that is really slowing down retail business.'

'taxed excessively'? Is that so? The UK has a £40bn plus public borrowing requirement for 2008/9, conservatively. An accountant would recommend raising income, i.e. higher taxes or cutting expenditure, i.e. services and public sector employee wages. Neither palatable. But it's called Austerity. The 15 year odd borrowing binge and remortgaging(housing 'atm'), equity withdrawal financed an awful lot of those new car sales, particularly the vastly increased sales of prestige marques. As Mervyn King said recently the NICE(no inflation, continuous expansion) decade(15 years?) is over. However, what he didn't or couldn't bring himself to say is '...yes, and austerity, a la 1970s is here with a vengeance'.

It's either cut govt. expenditure now by a minimum of £50bn or wait for the IMF to compel you to do it in 2010, at the latest.

James Ruppert June 23, 2008 6:02 PM

Well, less taxes on car and car use, or vehicle use which in turn puts the prices of everything (goods and services) up. Personally I have experienced the early '70s, early '80s and '90s recessions and this one has just arrived a bit late...I've been ready for it for a long time, but that's not me being clever, it is a cyclical thing. Sadly a lot of people forgot about negative equity, don't save up for stuff for anymore or simply can't cope if they can't borrow which may mean this recession is a td more painful for more people....J

keeforelli June 23, 2008 7:32 PM

We have all had a part to play here- the government can create the infrastructure, but we choose how we act within it- in the western world we have had a 10 year boom of persoanl credit and house prices fueling spending- ...this is impossible to sustain..and people over committed..and are now feeling uncomfortable...

- in the process we have helped pull the developing world where all our 'goods' are now made into the first world economy...creating their massive thirst for oil..and all energy...this filtering every where with increased demand putting massive pressure on consumables....food production..you name it...but what western country can escape?...

keeforelli June 23, 2008 7:38 PM

and..just to be pedantic...a recession is two or more quarters of negative growth...which we dont have yet....and just to play devils advocate...can anyone tell me what government doesnt fiddle figures to look better?....

in which case..our inflation is still lower than europe....USA...etc..

i see credit crunch...but i also see media, bandwagon, jump on and sensationalism..it annoys me intensely....

what does credit crunch mean?..lenders behaving responsibly?..its wildly overused by everyone....how could things possibly carry on the way they were?....what would the media do to 'cure; this i wonder?

os993 June 23, 2008 8:01 PM

I hope there are some good super car bargains just before and after Xmas.  I have nnoticed F430s start from less than £90k and they are still not selling!  

loather June 23, 2008 8:32 PM

@keeforelli June 23, 2008 7:38 PM

'and..just to be pedantic...a recession is two or more quarters of negative growth...which we dont have yet....and just to play devils advocate...can anyone tell me what government doesnt fiddle figures to look better?....

in which case..our inflation is still lower than europe....USA...etc..'

Wrong. GDP growth in the UK from the last available quarter's figures(Q1 2008) was 0.4%; source ONS. However, in calculating this ONS staisticians use the inflation deflator at the official rate of the CPI figure, currently 3.3% As this is patently false and true inflation is running north of 9% p.a. and possibly as high as 25% plus - see ONS's last factory gate inflation figures which jumped a whole 1% in May and the Producer Input prices which rose 30% in the last twelve months; ONS, unlike the CPI figure cannot massage the producer prices and input figures as easily -  actual GDP 'growth' is negative, i.e. output is falling, economic activity at constant prices is falling. If you wish to educate yourself rather than spout half-truths and platitudes go to site like www.shadowstats.com where a decent man has tracked, analysed and recorded the manipluations of key economic indicator figures by the US Govt. The exact same has happened in the UK, just more egregiously.

So now we've established that the CPI figure is risible and that the GDP 'growth' figure is in fact a contraction. So whether we like it or not we DO have a recession. In fact we have worse. We have a hyperinflationary recession as opposed to a deflationary recession. However, the end result will be the same - mass penury.

And as to the cynical, jingoistic nonsense of every govt fiddling figures that is wrong too. The UK has as part of economic and monetary convergence in Europe adopted the same methodology for calculating official consumer price inflation. However, each EU member govt. can apply the weightings to the individual components of typical household spending as they see fit. Suffice to say at this point that the UK's weightings diverge massively from that of Europe's largest and currently most successful economy, Germany. If you still doubt that your(UK) govt and its retained, well-paid statistician civil servants are more corrupt than other major country's govts. I can supply comprehensive comparative analysis between that of Germany's CPI calculation basis and the UK's. You must remember that the Germans were burnt twice in living memory(just) by hyperinflation - Weimar 1923 and post-war 1948 or so. They would not tolerate being systematically lied to to such an extent by their govt. on the matter of price stability. By the way Germany's GDP growth figure for Q1 2008 was 1.5%, the highest in 17 years. A manufacturing, high wage economy is the ONLY long-run way to sustain prosperity. Was it not Henry Ford and his $5 day that understood this a century ago. What makes the UK different and able to disregard this?

keeforelli June 23, 2008 9:45 PM

i sometimes wonder that if the  magazine bloggers that are so well informed want to make a difference they would be better placed in the offices of the people they so clearly think are incapable of running the country.

what, loather should we do to get out of this mess? ...and have you been able to apply the same applicational basket of goods the germans use to calculate the UK rate?...or are we merely guessing at 9%..or 25%?...can you tell me what 'true' inflation is?....and tht your an economist?..because none of the UK or worldwide banks/financial agencies are predicting recession for us....what info do you have that they dont?....

keeforelli June 23, 2008 10:03 PM

oh...and loather... condescending and sanctimonious are words i have managed to be educated on and ones i clearly recognise in you...

so if you wish to improve yourself rather than spending time belittling people on here, i suggest you go chill out a bit...then maybe put yourself to better use at the ONS itself.

James Ruppert June 23, 2008 10:29 PM

I do glaze over when I see a lot of figures and stats which explains why I only got a grade 4 CSE in Maths. The point of this piece was that if you talk to those on the front line of retail sales they will tell you that things are a bit depressed at the moment, never mind what economists might tell you. I notice that the Daily Telegraph has a real price index which you have to agree with and shows that actually we are paying a lot more for consummables. Nope we are in trouble and the only way out is that prudence that Gordo used to go on about, only spending what you've got and all that stuff.

loather June 24, 2008 8:09 AM

@keeforelli June 23, 2008 9:45 PM

- regards UK motor market and wider economy: there is a recession; there is hyperinflation; there will be a slump with mass redundancies. Shooting the messenger with ad hominem refutations will not change it.

-  'Producer Prices: Factory gate inflation rises to 8.9 per cent[May]'. 'Input price annual inflation rose from 24.3 per cent in April, to 27.9 per cent in May.' - that's hyperinflation. www.statistics.gov.uk/.../nugget.asp

- UK/Germany CPI calculation difference:

Internationally standardised CPI DIVISIONS and UK applied weightings(out of 1000):

10000: Food and non-alcoholic beverages 103

20000: Alcoholic beverages and tobacco 43

30000: Clothing and footwear 62

40000: Housing, water, electricity, gas and other fuels 115

50000: Furniture, household equipment and routine maintenance 68

60000: Health 24

70000: Transport 152

80000: Communication 24

90000: Recreation and culture 153

100000: Education 18

110000: Restaurants and hotels 138

120000: Miscellaneous goods and services 100 (adds up to 1000 in total)

Comparison:

category: '40000: Housing, water, electricity, gas and other fuels'

weighting Germany: .308(30.8% of total household spending)

weighting UK: .115(11.5% of ditto)

Germany's weighting nearly three times greater - explicable??

category: '11000: Restaurants and hotels'

weighting Germany: .044(4.4% of total household spending)

weighting UK: 0.138(13.8% of ditto)

Germany's weighting less than a third of UK's - explicable?? Are the British people three times greater restaurant-going bon viveurs compared to the notoriously poverty stricken bread and water Germans?

German CPI data source: www.destatis.de/.../WeightingPattern,property=file.pdf

UK CPI data source: www.statistics.gov.uk/.../cpibrief0408.pdf

James Ruppert June 24, 2008 8:31 AM

So what I said was right then, but with a lot less digits. Who is shooting who? You lost me there.

loather June 24, 2008 9:27 AM

James(June 24, 2008 8:31 AM),

my comment of June 24, 2008 8:09 AM was addressed to 'keeforelli', not you. Hence the '@keeforelli....

Cheltenhamshire June 24, 2008 12:49 PM

I like JJB's new login, Loather.  Making the same points but in a much nicer and less condescending and aggressive way.  Thumbs up!

nom de plum June 24, 2008 6:48 PM

Tally ho.....

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