Buying a new car? Better strike while the iron is hot!

As car dealers look to re-align the prices on their used car stock, they have to be mindful of reacting to the market too quickly. In other words, just because there seem to be fewer enquiries and the overall feel of the market has changed dealers shouldn’t think that by distress selling older cars they will not have to pay more in a few weeks time to replace similar stock.

It’s ironic that for most of this year the ratio for used to new car sales in franchised showrooms has probably been around 2-1 whereas now it is has almost done a complete about turn.

As we have pointed out, on more than one occasion, buyers are so much more aware these days and there is a feeling that they are really taking advantage of the fact that prices on new cars will be much higher next year than at present.

The switched on buyer will no doubt be aware of the factors that will affect the cost of a new car in the coming year.

VAT – The percentage rate at which VAT is charged is reverting back to 17.5% from 15% on January 1st 2010. (HMRC have produced this guide to the change).

Showroom Tax – From April 2010 along with the car tax costs for most bands changing there will also be a “showroom tax” introduced. This will be levied on brand new cars bought from April 2010 and lasts for the first year that the car is on the road. For example, a petrol or diesel “Band M” car that is bought new in May 2010 will cost £950 to tax for the first year, and then revert to £435 a year from May 2011. The tax also carries incentives for purchasers of more environmentally friendly vehicle and is designed to “encourage drivers to go green at the point of purchase”.

Currency issues – Renault, Skoda, Ford, SEAT, Nissan, Vauxhall and Honda have all recently raised their prices. The main reason given for these ongoing increases during a time of recession is the weakness of Sterling against the euro and with Bank of England Governor Mervyn King saying recently that a weaker currency will help the U.K. recover from its longest recession on record, we can certainly expect more of the same in the coming months.

So taking these factors in to account and ignoring the scrappage incentive (for once) let’s take the example of a £15,000 brand new car (depending on engine size etc) with mid range c02 which will be associated with the introduction of showroom tax, and which may be the subject of a modest price rise due to foreign currency issues, add to this the extra 2.5% being reintroduced to VAT and the average cost could be as much as £1,000 higher than it is today. And that’s assuming VAT only reverts back to 17.5%! But this is nothing to what the cost of a big “gas guzzling” four wheel drive could cost or a big engine sports hatch.

It is therefore little wonder that switched on buyers, who have educated themselves appropriately, are taking advantage by buying a new car now and letting others worry about the new year increases.