Scrappage ups and downs, winners and losers

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It’s too early for the “scrappage effect” to have filtered into the SMMT new car registration figures but dealers are certainly starting to feel the effect of the scheme – good and bad. The good for many dealers is that they are seeing a big uplift in showroom traffic the bad being the massive amount of administration required to qualify and the ultimately poor profit return. Dealers who sell new cars which are lower down the price scale are seeing up to a 30% increase in new sales, but are now worried that because of this extra demand they will be unable to supply a car in time for the deal to count. It’s pretty much just as we expected, as almost without exception the demand is for the most economical sub £10k sector where supply will be an issue and lower profits mean it’s good for the factories and will stimulate sales, but largely in a section of the market which was doing quite well any way.

A recent survey by the RMIF and Automotive Management revealed that 48.5 per cent of the vehicles being bought under the scheme are priced between £6,000 and £8,000 and 22.1 per cent are priced between £8,000 and £10,000. In addition 66.9 per cent of the vehicles under the scheme have 1.0 to 1.3 litre engines and 19.1 per cent of vehicles being bought have 1.3 to 1.6 litre engines.

We are hearing tales of dealers putting in orders for even fairly basic models and being given lead times of nearly 4 months which could easily preclude them from the scheme, as it currently stands, and have a severely unhappy customer who then has an old nail which is completely worthless again!

On the other hand, dealers have been encouraged with the increased showroom traffic which is giving them an opportunity to sell other cars and also convert buyers to used. Some are saying that because owners of these types of old cars are ”in the club” as it were they are curious enough to further enquire whether the scheme may work for them, when ordinarily they would not necessarily be thinking about a change at this time. This gives dealers the chance to give them £2,000 for their existing car on any model whether it qualifies or not. Surely for Renault, Peugeot, Honda, Fiat, Ford and the like can only be encouraging from a volume exercise point of view.

The buyers who got in quick and have been flexible about their choice are clearly the winners and dealers who have organised themselves early, by identifying the more likely cars required by customers who fit the profile for this programme, have also seen an uplift in volume sales but clearly profitability has been affected. In fact in the same RMIF survey 70.4 per cent of the dealers questioned revealed that they are expected by their manufacturer to financially contribute to the cost of using the scrappage programme so the dealer groups themselves will not see a massive boost in profits as a result of the scheme.

There will surely continue to be winners and losers until the door closes on the scheme and only then will we know if car makers, who, as we’ve said, should be the biggest beneficiaries, have sold significantly more cars, but then what happens?