Here at Fleet Street we try to look ahead. With plenty of gloomy domestic news to dwell on, it is too easy to become introspective and disinterested in happenings elsewhere. But keep a watchful eye on the horizon we must. Sub-prime started in America, and it is the Atlantic which looks set to dump another crashing wave of destruction on UK shores.

It’s US car sales this time, or auto sales as our US "special relations" call them. Down 18% overall year-on-year in June, the figure tells only part of the story. The woes at General Motors are well versed, although it managed to level-peg the market with an 18% sales decline. In volume terms it was almost knocked off its perch by Toyota, which is now within a whisker of replacing GM as the US’s largest automotive provider. And that was despite GM’s interest free finance deals and cash rebates. How the mighty have fallen. Other US makers performed even worse with 28% and 36% sales declines from Ford and Chrysler respectively.

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Hop back across the Atlantic and into the living rooms of Britain, where TV commercials are still blaring. The ads for cars are as lavish as ever, so the creative advertising industry appears not be feeling the squeeze. The same cannot be said for car manufacturers, who find themselves at the epicentre of rising metal, component and oil prices. Far from being able to pass these on, they find themselves staring into the abyss of collapsing demand for new cars.

It was banks that felt the UK credit squeeze first, then the housebuilders, as underlined by this week’s funding problems at Taylor Wimpey. And what, after homeownership, is the typical Brit’s next biggest purchase or aspiration? Yes, it’s the car.

Desperate measures

And, despite the desperate revival of 0% car finance — a product not seen on these shores for years — the punters have no reason to buy. There’s pain on the horizon for everyone connected with the automotive industry, in both manufacturing and retail.

Or maybe not. Even price inflation and declining demand can have a silver lining. Americans are not avoiding new cars all together. In an extraordinarily rapid change of habit, they are ditching their gas-swilling SUVs and flocking to new small compact vehicles.

While American car manufacturers are down in the dumps, Honda notched up a year-on-year rise in US car sales in June. Who would have thought it? There were even reports of stock shortages, preventing small car sales from growing even faster. American car buyers are clearly not expecting oil prices to fall.

This behavioural impact of the high oil prices is something that economists harp on about, but few expected to come into play quite so fast. Previous oil price rises, though painful, never quite succeeded in parting the citizen from his car. Has the consumer finally developed an environmental conscience?

Possibly. But it’s far more likely that this time, he or she simply has no choice. House prices are falling, mortgage rates are up, food is costing more to put on the table. The cash is no longer there, and something has to give. That ‘something’ is the car.

It’s great news for oil companies. Growing in confidence that high prices are here to stay, — they can now do something that low oil prices never let them do — invest in the future. A future which requires extraction of oil from the earth’s most hostile locations, and the development of new technologies and alternative energy sources.

If you’re interested in gaining some investment exposure to this trend, then my colleague Garry White can help. He runs a service called Smart Commodities, which is dedicated to finding you the best investments in that sector.

Find out more about Smart Commodities HERE

Andrew Vaughan

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