Record R-reg sales `not a sign of overheating'

Business leaders yesterday urged the Bank of England not to raise interest rates further despite figures showing that car sales broke all records last month as building society windfalls helped send demand for R-registration models well past the half a million mark.

Car sales during this year's August frenzy reached a new high of 525,539, well ahead of even the most optimistic industry predictions and comfortably above the previous peak for the month set in 1989. Imports took nearly 70 per cent of the market, fuelled by the strong pound.

But Ian McAllister, chairman of Ford, the market leader, insisted the figures did not reflect an overheating economy or an unsustainable consumer boom. "My gut feeling is that the economy is not as strong as these figures suggest, certainly not at the same peak as it was in 1989. I hope the Bank of England does not look at these numbers and interpret them as a sign of significant overheating because it isn't."

He added that special factors such as the unprecedented level of marketing activity by manufacturers and high levels of pre-registrations to bring sales forward from September had been behind the record figure.

Support came from the Confederation of British Industry's latest distributive trades survey showing that the pace of sales growth on the high street slowed "markedly" in August. Sales volumes fell well short of retailers' expectations after a buoyant June and July.

Dixons, the electrical retailer, also offered further evidence that the high street mini-boom was cooling. Same store sales in the 17 weeks of its financial year were 11 per cent ahead of the same period last year. That compares with a 17 per cent surge in sales which the company reported in July.

The CBI's findings support other evidence this week in suggesting that the interest rate increases announced by the Bank of England since May might be succeeding in taking the froth off consumer spending. It is expected to leave rates unchanged after next week's Monetary Policy Committee meeting.

The car sales figures yesterday from the Society of Motor Manufacturers and Traders (SMMT) showed registrations rose 9.6 per cent in August, from 479,945 in the same month last year, easily beating the previous August record of 500,112 sales in 1989, the only previous time when registrations exceeded the half a million mark. However, the SMMT stuck by its forecast of 2.1 million sales for the whole of 1997, up from 2.03 million last year but well below the record of 2.3 million in 1989.

"There was clearly pent up demand from earlier in the year last month. Some customers waited to buy an R-reg car with their windfalls," said an SMMT spokesman.

David Archibald, operations director of Nissan, said the market had gone "a little crazy". He continued: "No one predicted sales on this scale and we do see this as a blip."

Despite the demand from private buyers, the biggest rise in sales came from the fleet market, where registrations rose 10.6 per cent to 196,955. Strong sales for makes such as Renault and BMW contributed to a big increase in imports, which accounted for 68.1 per cent of the market last month, up from 62.8 per cent in August 1996.

Jay Nagley, an industry expert from consultants Quadrangle, said: "Loyalty to traditional British manufacturers is continuing to erode. The biggest improvements came from premium brands like BMW, Mercedes and Volvo."

Though Ford was again responsible for the top three best selling models, the group's market share dropped to 17.6 per cent, down from 18.7 per cent in August 1996 and 21.7 per cent in 1995.

Rover's slice of the market also slipped back further, from 10.2 per cent to 9.7 per cent. The figure include a record breaking performance at Land Rover, which sold 7,700 off-road vehicles.

Another loser was Volkswagen, which has suffered from shortages of the new Passat and has been caught out by unprecedented demand for the long- running Golf, which is due for replacement in the new year.

Manufacturers and dealers yesterday showed their increasing frustration with the Government, which has still not decided agree to the industry's plan for a twice-yearly number change in March and September.

Alan Pulham from the Retail Motor Industry Federation said: "This is sitting on ministers' desks and we can't understand why. It's not political and now the manufacturers and dealers have united on a solution."

August has taken a steadily larger share of the market in recent year. Last month will account for around 25 per cent of registrations in 1997, whereas in the record sales year of 1989 it made up just 22 per cent.

Alastair Eperon, chairman of the CBI's distributive trades committee, said it was still not clear how much money from the free share windfalls would eventually reach the high street, and he believed there would be be more to come.

But the survey showed there was no need to tighten interest rate policy for now, he said. "Growth in underlying sales remains relatively stable," he said.

The survey showed a balance of 22 per cent of retailers reporting increased sales last month, compared with 32 per cent who had expected a pick-up. The detail suggested that areas such as household goods and furniture, where spending might be windfall-related, had slowed down sharply.

One worrying aspect was that the proportion of deliveries retailers took from overseas suppliers was the highest since May 1990.

But economists cautioned that the CBI survey can be erratic from month to month. "It is too early to interpret this fall-back in spending as spelling the end of the current consumer upswing," said Richard Iley at ABN-Amro.

Indeed, the retailers surveyed said business was still above-normal for the time of year. They expect a rebound this month.

At Dixon's annual meeting the chairman Sir Stanley Kalms told shareholders that the rate of increase in sales had moderated from the exceptionally high levels in the first nine weeks of the current financial year.

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