The UK car market recorded a strong December to leave the sales tally for 2009 just shy of 2m units. However, analysts forecast that UK car market faces a tough year ahead with the market likely to fall when the scrappage scheme finishes in February.

New car registrations rose in December by 38.9% year-on-year to 150,936 units, boosted by scrappage. Full year registrations were down 6.4% to 1,994,999 units, the lowest level since 1995.

However, the car market last year would have been considerably lower without the UK government's scrappage scheme. Since its introduction, the scrappage scheme has accounted for over a fifth of all new car registrations and is estimated to represent 20.8% of the December market.

"The December new car market was boosted by the Scrappage Incentive Scheme and consumers looking to avoid January's VAT increase," said Paul Everitt, SMMT chief executive. 

"The 2009 market of 1,994,999 new car registrations was significantly above early expectations and reflects the positive impact of the scheme, due to end in February.

"Another tough year awaits the UK motor industry in 2010, with new car registrations expected to be below 2009 levels and only limited recovery in the van and heavy commercial vehicle markets.  Sustaining the progress made in the latter part of 2009 will require stronger demand from fleet and business buyers, alongside the greater availability and affordability of credit and finance," he said.

An increase to VAT from January 1 (from 15% to 17.5%) also helped to lift December sales, the third best December on record and the highest since 2005.

Ford's Fiesta was the best selling model in December and over the full year.

David Raistrick, UK Manufacturing Leader at consultants Deloitte also noted that December's surge has helped the UK automotive sector's 2009 performance end on a high.

However, he warned that the UK car market this year could dip as low as 1.7m units. He also said that annual UK car markets over 2m units over the past decade were unsustainable and predicted that over the next 3-5 years it will remain below 2m units.

"2010 figures will be affected by the impending end of scrappage, the increase in VAT and the rising input costs resulting from the fall in sterling. My prediction is that there will be a dip in 2010 to around 1.7 to 1.8 million units, with the figures balancing out in 2011 to a long term annual average of just under 2 million units.

"Only since the late 90s have we seen annual figures over 2 million units which many industry experts believe were due to additional registrations being forced on the market rather than due to consumer demand. The long term average for the majority of the past three decades has been less than 2 million units per annum.

"For the immediate future, it is unlikely that we will return to the heady days of the past decade where unit numbers have been over 2 million. These numbers were unsustainable and a market correction has been expected for some time. Certainly over the short to medium term (3-5 years), annual registrations will remain sub 2 million."

The UK retailer body RMI also pointed to the success of the scrappage scheme in spurring private buyer sales in 2009.

Sue Robinson, RMI director, noted that 304,598 new vehicles have been ordered through the scrappage scheme since it went live in May.

"Car showrooms in 2009 have seen the return of the private buyer, with increased footfall into car dealerships," she said.

"The scrappage scheme has tempted private buyers back into the new and used car market and 2009 saw a 13.7 per cent rise in private vehicle purchases compared to 2008. However the business market is still fragile, with many fleet and business operators delaying the replacement of vehicles.'

Capitalising on this market change, Hyundai, Kia and Nissan have shown considerable sales increases. They have each gained a significant market share helped by small car offerings.

Robinson also noted that in addition to VAT being increased to 17.5% and the ending of the scrappage scheme, there is 'an uncertain political landscape.' A general election is due to be held on Britain - most likely in May.

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