- Falling car sales could point to a Labour government under Jeremy Corbyn.
- Car sales closely track consumer confidence, which in turn is a good indicator of voting intentions.
- The phenomenon — spotted by Samuel Tombs of Pantheon Macroeconomics — was obvious at the general election last June.
LONDON — Data from the Society of Motor Manufacturers and Traders (SMMT) on Friday showed that for the first time since 2011 Brits bought fewer cars than the previous year in 2017. Not only that, but car buying dropped by the largest amount since the tail end of the financial crisis in 2009.
The numbers may help predict what happens the next time Britain goes to the polls in a general election, something many commentators believe is likely to occur sooner rather than later.
Here’s how it might work.
New car registrations, the key metric used by the SMMT are generally highly linked with overall consumer confidence, the index that measures how ordinary British people feel about their personal financial situation.
The reason for this is pretty obvious.
A car is pretty much the biggest purchase you can make — other than a property — and when you’re not feeling great about the state of your finances, you’re probably not going to think about buying a new one, choosing instead to just make do with what you’ve got.
So, when consumer confidence drops, so to do car sales, as the chart below (courtesy of Pantheon Macroeconomics analyst Samuel Tombs) shows:
In turn, consumer confidence indexes have proved to be a surprisingly good indicator of what goes on in UK politics, particularly during last year’s June election.
On May 19, three weeks before the general election, Tombs published a chart showing the relationship between consumer confidence and the size of a UK government’s majority in the House of Commons after a general election, and predicted just a slim Tory majority.
At the time, the vast majority of commentators, as well as the polls, were predicting that Theresa May’s party would increase their majority significantly. What actually happened, as we all know, is that the Tories failed to win a majority, and were forced into a confidence and supply deal with the Northern Irish DUP.
The basic argument for the theory is that when consumer’s get less confident about their finances they tend to blame the incumbent government, therefore are more likely to vote against them at the next election. Right now that means people moving away from the Tories, giving a boost to Jeremy Corbyn’s Labour party.
So, while the polls show that the Conservatives and Labour are pretty much neck and neck, and suggest the Tories will manage to remain as the biggest party at the next election, car sales data suggests otherwise.
Things are only going to get worse for the car industry as well.
As Sam Tombs wrote on Friday: “Sterling’s depreciation points on past form to new car prices rising by about 4% in 2018, similar to the 3.8% rise seen over the last year. Demand also likely will be hit by further increases in personal loan interest rates, which rose in year-over-year terms for the first time in five years in Q4.”
“Closer regulatory oversight and rising funding costs will force lenders to raise interest rates for unsecured loans further this year. All told, then, the downturn in car sales still has a lot further to run.”
Britain’s next general election isn’t scheduled until 2022, but virtually no one expects it to be that long until a vote. Analysts at Morgan Stanley, for example, think it is “likely” that Britain will have a general election in 2018 as rifts in the Tory government intensify.
“With a minority government torn over Europe and facing a divisive choice between ‘taking back control’ and maintaining close links, we see another early election as likely,” economists Jacob Nell and Melanie Baker said last November.
If that election comes to fruition, and consumer confidence continues to fall, don’t be surprised if you see Jeremy Corbyn in Downing Street before the end of the year.