MILLBROOK, England (Reuters) - A series of even small rises in British interest rates would be a big blow to the country’s car industry, the CEO of Hyundai UK (005380.KS) told Reuters on Thursday.
Tony Whitehorn said the car industry was particularly susceptible to increased borrowing costs due to the high proportion of sales made via finance packages which help consumers to spread the cost of a new vehicle over many years.
Britain’s record low 0.5 percent base interest rate is likely to rise in early 2015 for the first time in what would be about six years, according to economists polled by Reuters.
There were signs this week that some Bank of England (BoE) policymakers are already leaning towards voting for a rate hike.
Whitehorn, speaking at gathering of British car executives at a test drive site 50 miles north of London, said low interest rates were a major driver of increased car sales and a series of quick hikes would have a negative impact on the industry.
“Let’s say (a) 0.25 (percent rise) may not have significant impact but if that was followed in two months’ time by another 0.25 and in two months’ time by a further 0.25, that then becomes quite significant.”
“I think it just has significant ramifications to confidence and directly into accessibility of funds to buy cars,” he said.
The BoE has said it expects to raise rates only gradually when the time comes and to a level materially below where they stood before the 2008-09 recession.
The impact of the financial crisis forced carmakers to push discounts and cheap finance deals, where some customers can pay as little as 100 pounds ($170) per month.
Many customers effectively rent a brand new car typically for three years before trading the vehicle in for a new model using a scheme known as PCP or personal contract plan.
Such measures have helped boost car sales in Britain with the industry now predicting a total of 2.4 million sales in 2014, 100,000 more than its previous estimate.
The CEO of Kia Motors UK (000270.KS), Paul Philpott, told Reuters that interest rates were discussed at a meeting of British car executives on Thursday.
“The major thing that we’re all watching is for interest rates because a lot of business is being done on finance right now,” he told Reuters.
“(For) those brands that are marketing a zero percent finance, as interest rates goes up that becomes more costly.”
($1 = 0.5925 British Pounds)
Editing by William Schomberg and Mark Potter