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Crisis hiding in plain sight

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Putting a positive gloss on the news is especially important as we attempt to recover from a pandemic.  And if that positive gloss is green in colour, so much the better. And so yesterday we were treated to the news that:

“More electric vehicles were registered than diesel cars for the second month in a row in July, according to car industry figures.  It is the third time battery electric vehicles have overtaken diesel in the past two years.”

That is surely great news.  But as is usually the case in matters green, we are starting from a very low position.  Much more will have to be done to raise the number of battery-only EVs from the current nine percent of registrations in 2021 to the planned 100 percent by 2035.  Moreover, the current nine percent is a share of a dramatically depressed new car market… which is the real headline news in this story.

Nobody is actively covering this up; but they are playing it down.  According to the BBC piece which celebrates the rise in EV sales:

“However, new car registrations fell by almost a third…”

Insofar as the wellbeing or otherwise of the car industry has been a measure of the health of the wider economy throughout the oil age, a 29.5 percent collapse in new car sales ought to have been given far more prominence.  This is particularly true insofar as this year’s decline comes on the back of the massive lockdown-decline in 2020:

Instead we are treated to several implausible explanations for why this is nothing to worry about.  First, we are told, the decline is the result of people no longer wanting to buy diesel cars.  Certainly, there has been a collapse in demand for diesels in the wake of the Volkswagen scandal and government increases in tax on diesel vehicles.  But the collapse is in all cars; and we are still buying petrol cars.  Indeed, the decline in diesel cars and the rise in EVs and petrol cars points to a shift in preferences within a broad collapse in sales.

Then, we are told, the issue is actually on the supply side.  The reason, apparently, that two-thirds of potential buyers chose to sit this one out is because there is a shortage of silicone chips and because the government’s self-inflicted “pingdemic” caused factories to shut down.  This requires us to ignore the millions of new cars sat in parking lots waiting for demand to rise once more.

Finally, and somewhat more plausibly, pandemic uncertainty continues to weigh on the minds of corporate bodies which have put off renewing their vehicle fleets until there is greater clarity about the state of the post-pandemic economy.  After all, this time last year there was an expectation that the economy was about to reopen.  Instead we witnessed a massive increase in cases from September, followed by new restrictions and a Christmas to Easter lockdown.  Nobody can blame the UK’s finance directors from holding back on new investments this time around.

The pandemic though, is not the cause of the decline in UK car sales.  According to data from the Society of Motor Manufacturers and Traders, car sales have been in decline since 2015:

As with so many of the weaknesses in the UK economy, the response to the pandemic has accelerated an existing trend rather than caused it.  In reality, the decline in car sales is a consequence of the same underlying issues responsible for the general collapse in retail in the years following the 2008 crash.  Even as prosperity has collapsed, so the cost of essentials like rent, utilities and food has increased.  The result, for the majority of the population, is that discretionary spending – the amount left over after the bills have been paid – has collapsed.

The car industry’s attempt to overcome this problem was the introduction of leasing.  Setting up their own finance houses, car manufacturers loaned buyers the cash to purchase the cars.  Although the buyer would pay more over the course of the contract, the monthly payment was relatively low; allowing the new car to become another item of essential spending.  Similar leasing deals have since been introduced in the used car market; not least because a collapse in used car sales would crash the leasing finance houses.

The broader problem though, as the banks discovered in 2008, is that no matter how much debt you generate and no matter how much you manipulate financial instruments to offset the risk, ultimately the entire system depends on continued sales growth.  And that is the one thing which has been missing across the UK economy since 2008.  Yes, there are still pockets of affluence in the leafy suburbs adjacent to the top-tier universities.  But their collective spending cannot make up for the collapse in discretionary spending across ex-industrial, rundown seaside and small-town rural Britain.

What the car sales data tell us is that anyone who imagines that the economy is about to bounce back from its lockdown woes is simply deluding themselves.  Indeed, insofar as items like cars are included in official inflation figures while essentials like housing costs are not, anyone who thinks we are about to experience runaway inflation is also being misled.  The current price increases are the result of shortages caused by disrupted supply chains.  But because there is insufficient discretionary purchasing power in the system, the result of increased prices – as we are seeing with car sales – will be a drop in purchases followed by company bankruptcies rather than sustained price increases.

Price increases are real enough and are a growing cause of misery for the UK burgeoning precariat.  The cause though, is not the massive currency printing of the past eighteen months – most of which ended up in the pockets of the already wealthy – but the underlying – and largely unseen – growth in the energy cost of energy; which makes the cost of everything else rise remorselessly.  The crisis which is hiding in plain sight is that the decline in sales of goods of all kinds – accelerated by the lockdown measures – spells catastrophe for an economy like the UK which has been built on the debt-based mass consumption of imported goods.

As you made it to the end…

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