VAT and the Phew! factor

The recent emergency budget certainly didn’t seem as bad as it could have been for the motor trade. The VAT rise will of course hurt when it arrives as it affects both buyer and seller. Profit from car sales is subject to VAT but a small crumb of comfort is that at least it gives dealers the opportunity to re-plan budget forecasts with plenty of notice. For dealers it’s a bit of a double edged sword because it gives buyers the opportunity to buy their new car before the January VAT rise and so should see the last quarter turn out far better than originally anticipated.

The fact that England have progressed in the world cup (more “phew factor” than “wow factor”) has also added to the feel good dynamic in the trade with many dealers reporting increased footfall and sales as a consequence.

Although the budget didn’t seem as bad as many had feared it will still have a dramatic financial effect on most of us and therefore saving money and cutting costs will be at the forefront of all our objectives, be that motoring related or otherwise, and it us up to the car business to offer buyers value for money in both their car sales and servicing offers.

The other opportunity is from car finance, despite the fact that dealer finance is almost always cheaper and at the least very competitive, buyers still have a reluctance to believe that interest rates are cheaper than the high street. This indicates that dealers and car makers need to put far more effort to promoting their finance deals so that buyers can make a meaningful comparison before they get to the showroom and that way they may not feel the need to arrange their loan before they get there.

It is great to see Toyota joining the 5 year warranty club and we feel it’s only a matter of time before many other car makers follow suit. For Toyota it’s a very shrewd marketing move given their recent troubles, but the concept of these longer manufacturer warranties is certainly testament to the better build quality and longer life of these cars. If manufacturers can feel confident enough in their product to offer that level of cover it should be good news for all of us.

For buyers it means mean more peace of mind and enables them to save lots of money in the upgrading of a warranty after year 3 which is when it can became really costly. The longer manufacturer backed warranties should have a positive effect on residual values as well lessening the pain of depreciation when it comes to sell.

With product deflation likely to be an issue in the not too distant future hopefully the VAT rise will not be as painful as feared.

Anyway the good thing about this country is that it doesn’t seem to matter what they throw at us we have a capacity to overcome it, let’s just hope some of that rubs off on the football team!

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