Outlook: Will the euro save our car industry?

IF THE pound behaves as it is supposed to this year, and gently rolls downhill as the euro gathers momentum, then the domestic car industry, for one, will not be complaining. The damage wrought by the strength of sterling is graphically illustrated in the annual car sales figures for 1998 out yesterday.

Rover, which for all its faults remains Britain's leading car producer, saw its share of the market fall to a new low of 6.6 per cent for December and 8.6 per cent for the year. Admittedly, the company has been the architect of many of its own problems. Its UK dealer network is crying out for products to sell because of the inspired strategy of phasing out some models before there were new ones to replace them. And by its own admission, Rover comprehensively failed to get to grips with the vicious marketing wars that broke out on the forecourts last year until it was too late.

But Rover is not alone in feeling the pinch. In December imports accounted for seven in ten new cars sold in Britain. Over the year as a whole, imports have never taken a bigger market share. That suggests some of the pain is also being felt in the British factories of Ford, Vauxhall and even the Japanese manufacturers.

In part the strength of imports is explained by the blurring of the line between fleet and private purchases. The big "buy British" fleet deals are becoming a thing of the past. Instead, the user-chooser policies being adopted by more and more companies tend to favour lower-volume importers.

But the exchange rate advantage importers have enjoyed must be a considerable factor, giving them the luxury of either buying market share with cheaper prices or pocketing a bigger profit. The British car industry has responded manfully with an export drive. Last year Rover's European sales rose by 7 per cent, while overseas deliveries helped Nissan's Sunderland car plant hit record production levels. But at current exchange rates, neither is making any money.

The 1998 figures also highlight a wider trend, which is that the market is becoming more and more fragmented. Not that long ago Ford, Vauxhall and Rover accounted for 60 per cent of all UK sales. Now that figure is down below 40 per cent as the likes of Renault, Peugeot and Volkswagen encroach on their territory.

The much-vaunted consolidation that is supposedly ready to sweep the car industry could reverse that process of fragmentation. Those driving the process are likely to be the big battalions of Ford and General Motors, which are better insulated than most against the vagaries of exchange rates by their sheer size and geographic spread.