BEN LAURANCE COMMENT: Cars... on a road to perversity

By BEN LAURANCE FOR MAILONLINE
Updated:

The clamour for subsidies to boost car sales becomes ever louder. Manufacturers and dealers are urging the government to spend money to encourage motorists to scrap old cars in order to buy new ones. (No surprise there). The AA echoes the sentiment (ditto).

Those calling for handouts cite the German experience. In February, after a scheme was introduced there, new car sales rose by a fifth.

In the same month, they fell in Britain by the same amount. The lesson? Subsidies work.

Opposing such handouts is becoming an increasingly lonely business.

Cars

Paying subsidies for people to sell their old cars is ridiculous; it would encourage sales rather than production and end up subsidising workers in other countries

But consider some of the perverse effects of payouts for scrappage. (As an aside, this horrid word appears to be an invention of the car industry. My dictionary doesn't recognise such a thing.)

If the government were to offer £2,000 or so for getting rid of a ten-year-old car, then such a vehicle would suddenly be worth more than a car two years its junior. This is patently ridiculous.

Furthermore, a subsidy would encourage car sales, not UK car production. Many vehicles bought in Britain are imported.

Czech workers turning out Skodas are no doubt an admirable bunch, but why should British taxpayers subsidise them? And is the car industry really so special?

For more than a decade, an MP friend has watched forlornly as pottery factories in his Midlands constituency have been shrunk, cut and closed. As he ruefully points out, why does no one think there should be a subsidy for buying a new dinner service?

Finally, we are asked to swallow the preposterous idea that scrapping old cars and buying new ones is somehow green. It's not. Building a new car requires an enormous amount of energy.

The tide is running in favour of subsidies for scrapping older cars - many of them still perfectly serviceable. I will continue to swim against it.

Great expectations

The past couple of months have seen a profound shift in what the City expects of Marks & Spencer. Trading? It's better than we thought: last week's sales figures were way ahead of forecasts.

But as we report today, a majority of analysts now believe the retailer will cut its dividend next month.

This is intriguing stuff. Last autumn, M&S was giving the distinct impression that it would hold its dividend for this year at least.

Certainly, a payout equal to last year's 221/2p-a-share gives an exceptionally plump yield - more than 7pc, even after recent rises in the M&S price. Not long before Christmas-the company was quietly telling its friends in the City that it would hold the dividend as long as it was covered by cashflow.

But now? M&S has gone understandably quiet: after all, it cannot really say a great deal before it announces results.

Nevertheless, it appears that watchers of the company are not being dissuaded from the view that the dividend may indeed be cut this year. Yes, some confident souls believe the payout will be maintained - despite an expected slump in profits. But rather more forecast a reduction. At the bearish end of the spectrum, a couple think it will be halved.

I must declare an interest here. I own some M&S shares - one of a small number of investments in companies that are unlikely to go bust and that offer high dividends.

Furthermore, I am not saying that it would necessarily be a bad thing for M&S to cut its payout. In these uncertain times, cash is a thing to be cherished and conserved.

But there are three points to make about the increasingly popular notion that a dividend cut is on the cards.

First, for many investors, it would do nothing to enhance the status of executive chairman Sir Stuart Rose. Over the past year, people have become increasingly mistrustful of him. He needs friends.

Second, to cut the payout would represent an extraordinary climbdown for Rose. After he first allowed himself to start using the r-for-recovery word, he made great play of the fact that dividends could be aggressively increased: over the two years 2006 to 2008, they bounded ahead by 60pc.

If, to take yesterday's Morgan Stanley prediction, the dividend were halved, it would be down to the same level as seen in 2004 before Rose was hurriedly winched in to fend off the unwelcome attention of Philip Green.

And third, never forget that M&S and Rose have an enviable facility for managing expectations.

The company is allowing dividend forecasts to be cut.

If it then maintains the payout, the City will do more than breathe a sigh of relief. It will greet the decision with a big hurrah.

My guess - and it's little more than a guess - is that M&S will strain every sinew to keep the dividend intact.

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