Peter Cooke wonders if
small players are afforded too much protection.

For generations there has been little protection
for small players. The Princes in the Tower were a case in point –
they were locked up and then done away with.

Yet today the pendulum seems to go to the other
extreme; let something go wrong in a complex social service, and
there will an enquiry taking years and costing millions from
already stretched budgets. At the end it is promised that lessons
will be learned – but will they be implemented?

Certainly we have moved a long way, from caveat
emptor to caveat vendor – but just how far should that balance of
power move? ‘Marketing’ I have heard defined as taking price
considerations from the demand curve – an interesting concept.
Political expediency and belated transparency seem to have spread
into economics with such a vengeance that we could be either in a
pretty pickle or on the cusp of another revolution.

‘Lowest cost’ does not always mean best in the long
term. Businesses, in whatever sector they operate, need to be able
to generate a margin; it is needed to pay for operating costs, for
new product development, to pay a dividend to the shareholders. So
why, today, does the margin – the profit – come in for so much
opprobrium?

Public perception

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Certainly I think that over the next year
or two, certainly in the UK, and partly triggered by MPs’ expenses,
the media and various pressure groups will have a witch hunt
scrutinising every transaction cost, every interest rate to see how
it is constructed, and what claim of ‘profiteering’ might be
levelled against those nasty capitalists on whose success our
much-depleted pensions rely.

A case in point is the range of finance products
being offered in association with the UK’s vehicle scrappage
schemes.

On the one hand, the Treasury is giving £1,000 of
our taxes for each vehicle being scrapped according to the rules,
provided the manufacturer and dealer contribute a further thousand
pounds or more. A memory lapse ignores the tax take on completed
deals.

The original equipment manufacturers (OEMs) are
already under considerable pressure, with assembly plants across
the UK and Europe working short time or on extended closure – yet
coming under attack for even considering rationalising and reducing
manufacturing capacity. You can’t have it both ways

The media and various pressure groups have devoted
considerable effort to scrutinising the plethora of credit deals
currently on offer through the OEMs’ captive finance houses.

One conclusion of the media’s spotlight is that
drivers may be better off if they ignore the finance programmes
offered in association with the various scrappage deals on offer
and take the vehicle with the best terms they can negotiate – and
accept the OEMs’ captive finance houses’ best price deals for a
‘conventional acquisition’.

Theoretically one might be able to structure a more
attractive deal using bank finance, if it were available, but the
banks which created the problems originally, appear to attract
little negative press at present for failing to provide appropriate
finance.

Maybe the motor finance industry is presently doing
itself a serious disservice.

Perhaps the industry, through the people who sell
vehicles and vehicle finance, should actually explain to buyers
that they, the sales people and even OEMs, have to make a living,
too.

While you can have an exceptional price for the new
vehicles, a profit is still needed if the buyer wants to be able to
have another, different car, in the future.

‘Deflation’ is not a nice term; but if everybody
demands ever more for less, could this happen in the future?

My real concern is one of short-term self
righteousness – if we have to seek to minimise or even eliminate
the profit margin on business we undertake, what will be left over
to develop the business, the products and services we will all want
in the future?

I am concerned that industry, and particularly the
finance industries, are coming under unjustified attack from
‘do-gooders’, the self-appointed vigilantes, for whom the
here-and-now ranks far higher than longer-term good.

Certainly the anger of those working in the real
economy is fully justified at the bending of rules, whether to
avoid capital gains tax or to provide a fully-expensed floating
duck palace, but a sense of realism and proportionality must be
retained.

The Princes in the Tower did not fare too well, but
times have moved on from there. If we wish to have a thriving and
successful motor finance industry in the future, a degree of
transparency and an acceptable level of rationality is needed.

It is almost a human right that everybody is
entitled to a fair price – but you can only take it once.

Professor Pater NC Cooke, KPMG Professor of
Automotive Management, University of Buckingham