New car price hikes threaten stability

The Lord Mandelson giveth and he taketh away and this phrase probably describes, quite aptly, what the motor trade is going through right now.

Last year jobs were being lost, sales figures were being decimated, showrooms were either empty or closing and factory output was grinding almost to a halt. After pressure from the industry and lobbying, most notably from the SMMT, the powers that be agreed to help and following the lead given by other EU countries introduced the scrappage scheme. They also helped by reducing VAT along with an albeit underused automotive assistance programme to aid manufacturer cash flow, and by and large most people in the car industry have hailed these measures as a success.

Indeed many up and coming car makers have significantly increased their market share and brand image as a direct result of these incentives.

Things however are all about to change with the all conquering scrappage scheme ending, VAT already having returned to 17.5% and many believing that figure may ultimately reach 20%, the dreaded showroom tax is about to hit the new car showrooms and due to currency issues manufactures have raised and will continue to raise new car prices. So basically all that was given (and a bit more besides) will be taken away and that’s not to mention higher fuel prices.

If we are not careful the situation could very well become worse than it was at the start of the recession and what prompted the scrappage incentive in the first place. This will be very disappointing, which is putting it mildly, given that the car trade is one of the few industries who have reacted well to the downturn and worked hard to get its house in order and present a more customer centric attitude.

You only need to look at the results of the big dealer groups recently to see that they have remained profitable and are growing their businesses once more.

Whilst it’s important for the motor trade to stand on its own two feet it would surely be more beneficial to the business and their customers to at least introduce any of these hikes gradually. By taking away scrappage, introducing showroom tax and raising VAT all at the same time seems a bit disjointed and counter intuitive given how precarious the economy still appears to be.

The bottom line for the car buyer is the cost of a new car this year will potentially be £000s more.