Things may get worse before they get better

Dealers, buoyed by the success of the scrappage scheme are becoming increasingly nervous about what happens when the money runs out. On first viewing the August figures look positively encouraging, but on closer inspection are they clouding the real picture? September is traditionally the strongest month of the year for new car registrations and the time where budgets are made or broken. Most franchised dealers expect to go into this month with half their target already achieved and manufacturers can usually be relied upon to introduce some kind of incentive to ensure that the ‘big’ month happens as planned. Whether that is subsidised finance or a great deal on a certain model or extra spec on certain cars, they usually have something up their sleeve. This year however with certain franchises they have seriously underestimated the numbers, and although this could be viewed as positive the demand for new cars is fuelled mainly by the scrappage scheme rather than a genuine desire to buy a new car.

Somewhere in the region of 50% of all new car orders for September will be as a result of scrappage and in some cities perhaps even more. This causes several issues; firstly it makes dealers think that there are lots of customers who want new cars, when in reality they are being lured only by the promise of a massive discount. Secondly the supply of cars is being severely restricted because car makers planned the supply of cars probably as long ago as this time last year so there may be many buyers left disappointed and thirdly it has a knock on effect on the late plate used car market with dealers looking to fill the gaps in new car orders with used cars which obviously don’t qualify for scrappage but compel dealers to offer an alternative in the face of a lack of new car choice.

It is important to keep a balanced view with scrappage, in the main dealers and consumers have benefited greatly and the goodwill should see us into 2010, but if the VAT goes back to 17.5% and scrappage ends abruptly, with no viable alternative or government support, it may mean that next year could be even more challenging than this one.