Header image  

SeriousSAAB
For SAAB cars made
after 1992

 
  HOME ::
   
 
 

Last May, one of our first articles discussed government proposals designed to boost flagging sales along the lines of European neighbours by offering buyers a cash incentive to replace older vehicles.  Then, we expressed doubts raised by others that questioned the logic of scrapping perfectly sound vehicles –to qualify, vehicles had to be over 10 years old with tax and test- which seemed to be out of step with the current vogue for recycling.  Indeed there have been many cases of some rare classic cars in perfect working order being scrapped.  Pundits elsewhere were quick to point out that in effect, tax payers’ money was being used to fund the purchase of cars for the general public.  The final, delivered scheme drew on funding of £300m – leaving the vehicle manufacturer to fund the other half of the £2000 rebate offered on qualifying vehicles. This revelation led to accusations of the scheme being half-hearted and this feeling was borne out by dealers trying to proceed with sales only to find out that the necessary paperwork hadn’t arrived. One trader with more than 30 years experience to draw upon angrily dismissed 'Cash for Bangers' as '...a complete farce. The scheme fails to live up to its initial promise - not only has the government's contribution been half what they promised originally but now we are mired in a row over VAT and piles of paperwork. Nobody seems to know what is going on. I suppose they (the politicians) were too busy filing expenses claims to sort the job out properly!'

It has always concerned the author that the scrappage scheme had fundamental flaws.  From a social perspective, those people who probably needed new vehicles most would be excluded because even a £2000 rebate would not bring a new car into their financial reach.  Many older cars are still on the road purely because of financial constraint not a conscious choice to run older vehicles.  Those who did choose to run classic cars were horrified that the scheme did not adequately protect our motoring heritage.  There are documented cases of vehicles like a rare Bond Equipe and a very nice Morris Traveller being submitted for scrap – the latter was saved by a scandalised dealer and the car subsequently sold on eBay for over £3000. One very real effect of the scheme has been to reduce the stock of older cars on the road to the extent that cars just under 10 years old have actually increased in value over the past 6 months and this of course makes it correspondingly more expensive for owners of older cars to replace them with something slightly.

This last case underscores a misconception common amongst the car buying public.  The cost to change cars is the crucial factor not the trade in price.  Many buyers found the fatal flaw in the equation when about to ‘sign on the dotted line’ and that is that cars eligible for scrappage rebates are not eligible for any other offer – including zero rate finance.  Makers defend this decision by pointing out that the scheme means that in having to charge £1000 less per vehicle leaves them nearly no profit and no room whatever for further concessions.

The serioussaab team tested the water by contacting a dealer who was happy to quote us an on the road price for a new Peugeot 206 diesel. With the scrappage scheme – the full £2000 rebate was offered, with us trading in a hypothetical older car registered prior to 1999 with current tax and test that we had owned for over 12 months.  Without the scheme, however, we were offered a car actually in stock with a reduction of  £2800. This was for a new 5 door car in white with less than 5 miles on the clock, taxed, with number plates and delivery charges paid and with car mats plus a gallon of fuel. In real terms then, an £800 improvement over the scrappage scheme.  Even the dealer agreed that we would be unlucky to receive just £100 for the notional older car, claiming that such machines were actually ‘in demand’.  Pressing the matter further, the dealer said we should point out to buyers that the best deals –from their point of view- always are available in showrooms near the end of the month or quarter because dealerships have to sell a set number of cars.  If they fail to sell a set number the cost (to them) for the next batch of new cars will be higher but if they exceed their target, the next consignment of cars will be cheaper.

Another dealer disclosed that on some new models which are in high demand, profit levels per new car were less than £300, with the greater potential for profit being locked in the car being part-exchanged.  Larger dealerships invariably work on an underwriting scheme whereby the dealer will contact other traders to invite bids for the car, so they will have a very good idea of the deal.  New car sales with or without part exchanges place pressure on the dealer’s sales staff to encourage buyers to buy protective coatings¶, gap insurance* or car mats to top up earnings.  These are actually good products and if a car is being purchased on finance, gap insurance is a sound proposition.

Motoring journalists have given the scheme a mixed reception, yet while some outline the weaknesses, others (like Parker's Guide) state that scarppage is the only way to secure a discount on high demand cars like the Audi TT, Fiat 500 or Mini, for example. There are other, more real life scenarios - with scrappage rebate, the cost of a Kia Picanto is far less than any amount of hard nosed negociation might achieve. This is good news for the family on a tight budget and surely, what the spirit of the schem should have been directed towrd achieving.

In conclusion, it is clear that car sales have improved during the 6 months or so that the scrappage scheme has been in operation.  The scheme got off to an inauspicious start, with dealers lamenting that poor implementation was wholly due to government incompetence.  What is also clear is that a worrying number of vehicles that should not have been scrapped either because of their classic status or because they were far from life-expired.

Has the scheme been a good thing?  From a social perspective, the financially disadvantaged haven’t benefited and from a green viewpoint, removing vehicles that were in full working order from our roads is a Pyrrhic victory.  The Green lobby are happy on one hand that life expired vehicles are to be recycled but concerned that replacing those that are not totally worn out is worse for the environment when replacements are being made.

From an economic angle, various commentators have expressed concern from the outset that it is foreign rather than domestic (UK) vehicle manufacturers that would be the ultimate beneficiaries of the scrappage scheme because relatively few vehicles purchased here in Britain are actually made here and of those that are most, nearly all are owned by foreign companies.

As to whether the scheme represents good use of taxpayers’ money is more open to question.  Rather than have a complex rebate scheme, would it not have been easier, cheaper and faster just to lower the VAT from 17.5% (or 15%) down to say 5% on new vehicles across the board for a limited time? Of course this would interfere with projected revenue that had been factored into budgeted spending but so, presumably, would the £300m set aside for scrappage anyway.

Footnotes

¶ Special coatings typically use nano-technology with the aim of reducing the need to polish the car so frequently. In effect, these are protective coatings that help protect vehicle bodywork from the elements.

* GAP insurance helps owners safeguard themselves from potential negative equity situations which could arise if the vehicle is written off whilst subject to a hire-purchase/loan/finance agreement and the payout is less than the amount owed. This is a no-brainer: buying a vehicle on finance without this is folly.

 


Copyright © www.serioussaab.co.uk January 2010. All rights reserved.
Read our full legal statement