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Tough trading conditions may mean fundamentals get overlooked


The ‘add on’ products which have proved a very profitable source of extra revenue for dealers across the board are now being looked at with more scrutiny to ensure that customers are being sold them correctly and at a competitive price. The competition commission has now decided to restrict the sales of PPI (payment protection insurance) to customers only after they have left the showroom and ‘cooled down’. There has long been scepticism about the value and expense of these policies as the costs in some have been exorbitant and the interest rates sky high. The new rules being introduced in late 2010 mean that retailers will not be able to sell PPI until 7 days have elapsed if the customer bought the car with a finance package, however a customer may approach the dealer of their own volition shortly after the conclusion of the transaction to purchase PPI.

The actual concept of PPI is in fact very useful, giving customers protection in the event of redundancy, the bad publicity it has often attracted is due to greedy dealers misleading customers and charging huge amounts of money and then baffling buyers when lumping it in with the finance figures. Most dealers will be actively looking to develop other income streams to counter the erosion of profitability in new and used cars and the strong competition as chassis margins evaporate and many have looked to PPI, paintwork protection and gap insurance, among other add-ons, to take the place of traditional forms of income in car retailing.
More often these days sales staff are massively incentivised to sell as many extra products as possible when shifting the metal, indeed some dealers can make more than £500 extra per car when attaching expensive add-ons which although useful can often be hugely over-priced with enormous mark-ups. Take, for example, paintwork protection which is often sold for hundreds of pounds more than it costs to buy and apply.

Like many products now attached to buying a car it is not necessarily the product which is the problem it is the mis-selling and desperate profiteering that causes the bad-feeling and recriminations. The fundamentals of who they are sold to, how they are sold, how much of a mark up and whether the costs do actually represent value for money are the things that may not get the attention they deserve when times are tough.

Feb 3, 2009In51der
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