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U.K. Dealer Bullish on Sales Despite Interest-Rate Hikes

* Rate rises will add little to cost of a car - Lookers CEO

* Benefit of strong pound could be passed on to consumers, he says

* Lookers focusing on premium, luxury brands with higher margins

By Costas Pitas

LONDON, July 9 (Reuters) - Future interest rate rises will not affect car sales in Britain and could easily be offset by manufacturers passing on their gains from foreign exchange, the head of one of the country's biggest car dealers told Reuters.

Car sales in Britain are on track to hit 2.4 million new car registrations in 2014, up more than 6 percent on last year and returning to levels seen before the 2008-09 financial crisis when they nose-dived and the government intervened to support the industry through a car scrappage scheme.

However any increase in Britain's record low 0.5 percent base lending rate - likely to come by early 2015, according to economists - has caused concerns for some in the car industry, where up to four-fifths of sales are on cheap credit.

Many buyers effectively rent new vehicles on attractive finance plans, before trading them in for new models after three years, prompting some British car bosses to say that even small rate hikes could hit affordability.

But Andy Bruce, the chief executive of car dealer Lookers which sells nearly 120,000 new and used cars in Britain every year, told Reuters on Wednesday that small rises in interest rates would be "inconsequential".

"Every quarter-point movement, if it's passed on to the customer, is 3 pounds a month," he said, adding the rise would total just over 100 pounds to the cost of an average vehicle on a three-year finance personal contract plan, or PCP.

"It's not going to stop somebody buying a car. So even three or four interest rate rises on that basis is not going to fundamentally change the affordability of the car."

Bruce said many firms could easily absorb the cost of a rate rise due to impact of the strengthening pound against the euro which benefits importers of euro-denominated car parts.

Last week, the pound hit a 19-month high against the euro following comments from European Central Bank President Mario Draghi that euro zone rates would be kept at record lows for the foreseeable future, a contrast to rate expectations in Britain.

 

SPENDING POWER

For Ford, which does much of its British business in euros - such as parts-purchasing and imports - every euro cent that sterling moves away from parity with the euro, the carmaker gains about 30 million pounds in turnover, Bruce said.

He said this kind of foreign exchange boost was being felt by many carmakers in Britain.

"The movement in the exchange rate in the last year of eight points is about 1,000 pounds a car to the UK on the basis that the average selling price is about 12,000 pounds," Bruce said.

"That's the difference between what they will be realising in revenue on the basis of today's exchange rate versus 12 months ago."

However, any interest rate hikes could hit consumers' disposable incomes and spending power by raising mortgage costs.

Britons are also on average more highly indebted than people in most other advanced economies.

Bruce said that Lookers was now increasingly concentrating on premium and luxury brands including Volkswagen's Audi and Bentley models as well as Tata-owned Jaguar Land Rover where margins tend to be higher.

He also said the firm, which operates from around 130 sites in Britain and Ireland, had recently begun to consider expansion and the opening of its first new-car dealership abroad was a possibility.

"I wouldn't say it's on the horizon but it's something that I wouldn't rule out in the long run," he said, adding the possible timeframe would be in five or more years.

"We haven't got a strategy for it but my personal preference would be the U.S. I think the market is more open there." (Editing by Pravin Char)