The unseen downside of scrappage

It seems that we are always banging on about scrappage, and to tell you the truth we probably are, but it is still a unique concept and it’s easy to see the drastic changes in the car business this year as a result of it so, as a result, we will continue to bring our view on the world of scrappage to our readers.

Having had a chance to reflect recently many dealers revealed they initially saw the energising effect it had in their showrooms and on staff morale. It bought that priceless ingredient to proceedings “atmosphere”. Any sales manager will tell you that if there is activity and atmosphere or a ‘buzz’ in the showroom this will almost certainly lead to sales. Customers and sales people can all pick up this vibe and are far more likely to be enthusiastic about doing business than when the place is empty and staff are benign.

It is probably like the empty restaurant scenario, you can stand outside and drool over the menu but you won’t go in unless there are customers already in there. What we believe has happened, as a counter argument with scrappage, is that as it has been very profitable business because of the nature of how it has been set up, a contribution from the government and the manufacturer, it has meant that dealers have been able to hold their margin because of the mass of publicity and marketing campaigns.

Whilst a sales person may ordinarily have discounted a car by say 5-8% the perception of the customer has been that they have already got a good deal and therefore the sales person, who has also got to think about dwindling supply and strong demand, can hold out for a customer who is happy to accept the headline deal and thus make each sale profitable.

Whilst this has been great, and many city dealers selling cars which lend themselves to scrappage have reported that 60% of their new car business this year has been as a result of the incentive, it has also caused some concern. As the scheme slows up, and eventually ends, have these same car dealers got the expertise to ensure that sales people, who have not really had to “sell” these cars, are capable of reverting back to doing the hard yards and really selling a car to a customer when faced with the usual constraints of discount culture and competition?

One sales manager told us of his concern that sales people were actively seeking scrappage customers over others because they clearly present the easiest option. Where a scrappage deal may take 1 hour at most, trying to win a customer over to a particular model and deal, when the margins are tight and they are not particularly restrained by budget, have meant that dealers have actually lost business as a result of how easy selling scrappage cars has been.

If you think about it many people who bought a car on scrappage will only have been alerted to it in the first place because they had a car that qualified, would they have changed their car under normal circumstances? Probably not, but moreover would they, having maybe not bought a car for many years and given that by the mere fact of owning an older car can get a £2k discount, be more likely to accept the price and not haggle? Probably yes. So what has happened to the customers who did not qualify for scrappage but who wanted to buy a car but were passed over for easier pickings?

Well for the sake of car dealers let’s hope they are still looking or are prepared to give their local dealer a second chance, because otherwise, with all the impending changes next year, like rising list prices, a return to 17.5% VAT and the dreaded new showroom tax, the job of a salesman will be much harder and without scrappage to bolster their sales let’s hope they are up to the task.