Low interest rates help to ease nervous market

Carmakers remain nervous about the prospects for the second half of the year, despite the fact that sales are up and dealers say there are plenty of customers about. Salesmen admit it is proving a little harder to close a deal but margins remain good and stock levels low.

There are even signs of fleet buyers returning to the market as they finally get to grips with the implications of the new benefit-in-kind tax rules. Diesel sales are booming and there is increased interest in cash-for-cars schemes.

The nervousness is fuelled by worries about the medium term strength of the economy and whether the present sales growth rate can be sustained if people start to fear for their jobs or house prices begin to fall.

There is a big push under way from now until the end of September. Consumer offers are good, interest rates are low and there will be plenty of marketing activity around the new format number plate.

The Bank of England has done its bit. Interest rates have bottomed out and the promoted rates on offer this quarter are notably lower than last month. Ford Credit is now offering around 7.9% APR on mainstream models such as Focus – last month that was 9.9%. The Fiesta, which is moving into its run-out phase, is as low as 5.9% on some deals.

Even the prestige carmakers are ready to deal – both BMW and Mercedes-Benz have dropped the APR on their finance deals by 2% this month.

As a result companies such as Peugeot and Renault, which launched their finance campaigns early, now look a little out of step and may have to move again.

With interest rates so low, 0% becomes relatively cheap to offer. We are seeing deposits drop from 50% to 30% (Daewoo, Fiat and Nissan) while repayment terms are up to 36 months in selected cases.