Car sales hit by frugal consumers

Economic uncertainty has kept consumers away from showrooms

Sales of cars in the UK dropped by 5% last year to fewer than 2.5 million as consumers steered clear of showrooms, an industry association has said.

The Society of Motor Manufacturers and Traders (SMMT) told the BBC that interest rate levels and growing economic uncertainty had hit sales.

However, the business market was more buoyant, helping offset a 10% drop in the consumer market.

And car sales picked up in December, rising by 8.7%, a record for the month.

This was the first month of annual growth in 2005, on the back of a jump in diesel registrations, SMMT said.

But despite the December revival, SMMT chief Christopher Macgowan said he expected a further sales dip in 2006.

"Dealers will continue to fight hard for every sale," he said.

'Serious drop'

The fact that consumers have been reluctant to buy new cars is particularly worrying, the SMMT said.

I think we have got some difficult days ahead Christopher Macgowan, SMMT

"It's the consumers that have stayed away from the showrooms in 2005 - about 10% down, a really serious drop," Mr Macgowan said.

The 2005 performance stands in contrast to the three years from 2001 to 2003, each of which produced record demand for new cars.

"We have had some good years, so some might say this is merely an adjustment, but it is down and it is serious," Mr Macgowan told the BBC.

The SMMT has now predicted a further "small reduction" in sales for 2006.

"I think we have got some difficult days ahead," Mr Macgowan said.

However, German car giant BMW announced on Friday that it had achieved record UK sales in 2005.

Sales of its BMW models were up 9% on the year, with sales of the BMW-produced Mini climbing 3%, making 2005 the best year since the new Mini was launched in 2001.

"2005 was an extremely competitive year but BMW and Mini have yet again achieved record sales," said Jim O'Donnell, managing director of BMW (UK) Limited.