Peter Cooke wonders
who is actually benefiting from the ‘success’ of the government’s
much-vaunted car scrappage scheme
Satnav systems are like mothers (or
governments): they know they are right even when one can offer a
better alternative to their arguments, by which time they have
moved the goalposts. The fact the satnav tries to take you through
a deep ford or down a gated lane is irrelevant – its task is to get
you there in the end.
Go deeper with GlobalData
Given the experience to date with the scrappage
system, one might look for a high degree of congruence with the
satnav. The objective is to ‘get you there’ – to a place with the
satnav, and to new car sales with scrappage. However, one might
ask, is the latter going about it in the best possible way?
I have never been a fan of the car and LCV
scrappage scheme as it stands and have said so both at conferences
and in print. I fear my arguments are starting to be borne out.
Car scrappage schemes may look good from a
government viewpoint – they boost new car sales by apparently
‘significant volumes’. Great – for the Daily Mail or the Daily
Express headline writers. But what about the industry – which
organisations are actually benefiting from the existing schemes in
the United Kingdom?
It is accepted that some 80 percent of new cars
sold in the United Kingdom are imported and the bulk of our
manufactured product is exported, but, given the £300 million or so
being spent on the scheme – is it, in the cold light of day –
giving the taxpayer and industry the best value for money?
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataBehind the figures
If one looks at the most recent months’
car sales, it will be noted that the bulk are small cars and many
are Korean or other Far Eastern products at extremely low prices –
some would claim true ‘entry level’ prices.
While the new car sales figures may provide
politicians with that critical crowing factor – “look, we helped
the industry!” – and a day’s positive media coverage, one might ask
if £300 million is an awful lot of money to spend just for a few
months’ headlines.
The light touch of £1,000 per car from the taxpayer
and the same from the manufacturer might seem, at least on the
surface, a better deal than the €2,500 from government in Germany.
But where does the original equipment manufacturer’s £1,000
contribution actually come from? Chances are a goodly slice will
come from the retailer in the form of lost bonus or reduced dealer
margin. There may also be other pressure for the dealer to
contribute more.
On the other side of the equation, the dealer will
probably lose out on the service on the new units, which will
probably not require more than a service a year, with even that
probably covered by warranty, meaning that the margin to the dealer
will likely not amount to very much – and that is on a good
day.
One dealer likened the current situation as
“downing a pint of perfect beer in one gulp – sensation with no
taste.” It is moving cash for the sake of moving cash with minimal,
if any margin.
The short-term fix in terms of new car sales cannot
necessarily be seen as beneficial for the motor trade. How much
service business will be written out over the next three to four
years by the artificial replacement of the targeted 300,000
vehicles compared with the existing parc? Say a couple of services
a year, a total of 600,000-700,000 service events.
Let’s be conservative and say a mere 500,000. Be
even more miserable on the pricing – say, £40 an hour retail. Half
a million multiplied by £40 is one heck of a lot of money to take
out of the system. Do your own sums; oh yes, and don’t forget the
VAT. How many P45s does that represent?
Anecdotal evidence suggests many cars being
replaced are coming from relatively well-off households who would
pay for service and not do it themselves.
Real strategic problems
While this burst of government largesse
using our taxes may be good for one set of headlines, i.e. those
concerning new car sales, if we look into the equation more deeply
there could be some real strategic problems on the horizon.
Part of the answer may be to link the sale of
replacement for scrappage vehicles with finance packages offering a
margin, but even such credit may be in short supply, and with low
prices the absolute margin is seriously reduced and it does not
protect jobs.
I come back to my opening statement regarding
satnavs, mothers and governments always knowing best. While they
might get you there in the end, do they necessarily choose the best
way?
Should we shout – or just be resigned?
Professor Peter NC Cooke, KPMG Professor of
Automotive Management, University of Buckingham
