Almost daily we hear news that the UK Government Scrappage Scheme has kick started the car sales market, and in some respects it has, but also there have been some detrimental effects.
Firstly, car dealerships have to match the 1,000 pounds discount offered by the Government which means that they lose mark-up on each unit straight away, secondly as many people are scrapping their cars, this has had an adverse effect on the used car industry.
With fewer cars circulating the used car market, used car valuations are actually plateauing and in some cases are even rising, which seems bizarre in a struggling market and even more bizarre given the current economic frailties.
Many car dealerships are in fact grumbling about the Scrappage Scheme as even though it has been successful in terms of increasing sales levels, there is little in it for the salesmen themselves in terms of commission.
I test drove a couple of cars recently at two of my local car dealerships and one salesman in particular was moaning about the paltry commission that they make when sealing a scrappage scheme deal.
I wasn't sure whether he was making a point to hint that he would not budge on the price if indeed I had decided to
barter (I didn't, in fact I decided not to renew my car at all, particularly with that moany salesman!).
But having conducted some research it appears that said moany salesman was telling the truth. So while the Government Scrappage Scheme may have been a success in fulfilling its main objective: to boost sales figures, it also has a few fallbacks.
Nonetheless, car dealerships are performing significantly better than they were before the scheme was introduced, it has safeguarded jobs, which given the high unemployment levels in the UK is most certainly a positive, and it has also got the car sales market moving again.
The real litmus test will be when the 300 pounds million that the Government have set aside for the Scrappage Scheme has run out - if sales levels continue to rise or even plateau then it will most certainly be deemed a success but until we see that car dealerships will argue that in terms of revenue, they're not necessarily better off than if the scheme had never even existed.
If the Government had followed Germany and offered the full 2,000 pounds instead of getting car dealerships to match it, it would have been an undeniable success, but they didn't and therefore doubts still remain.
Author Resource:-
Thomas Pretty is a market analyst with many years of experience analysing different market sectors. Find out more about car dealerships at http://www.dickensgroup.com/
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