Despite the scrappage schemes
in Germany and the UK having had positive effects on the market,
there are still concerns over the future growth potential of motor
finance, says Professor Peter Cooke.
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A new study published by the University of
Buckingham takes a very objective view of scrappage schemes in the
UK and Europe, and seeks to look behind the short-term market
euphoria and present the alternatives for a longer-term view.
The study – Recession, Scrappage and
Sustainable Recovery – examines the various scrappage schemes
in Europe, focusing on Germany and the UK and seeks to present a
highly objective view of the results to date and the future
expectations of the programmes. While there are numerous calls for
some European scrappage scheme to be continued, there are
longer-term problems hiding close to the surface, if the report is
to be accepted.
The report seeks to put scrappage in a wider
industry context and link it with economic recovery – and the two
are not always the best of bedfellows.
The German scrappage scheme, based on €2,500
(£2,100) per unit with the option to acquire a new car or a unit up
to a year old, was extremely well received in the market and, with
the €5bn available, led to the replacement of 2m old cars with new.
Some critics are now claiming the scheme was too successful,
pulling forward sales originally projected for 2010 into 2009.
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By GlobalDataThus, the sales of new cars in first quarter 2010
in Germany have dropped by 22.8% from the previous year. 2009 was
one of Germany’s best new car sales years volume wise, although the
mix of units had moved strongly to smaller vehicles – as indeed it
did across the whole of Europe.
In 2010 Germany may well suffer excess
manufacturing capacity against a severely reduced market – could
that mean a risk of higher exports to the United Kingdom? Time will
tell.
To return to the UK scrappage market, generally
hailed by the government and the Society of Motor Manufacturers and
Traders (SMMT) as being a highly-positive influence on the market,
the allowance of some 400,000 units appears, at the time of
writing, to have been achieved ‘within experimental error’.
With the cars sold under scrappage included, the UK
market in 2009 was 1.99m new cars. However, if one excluded the
units replaced under the scrappage programme, that figure drops to
1.71m units – the lowest figure since the mid 1990s.
A recent report released by the SMMT suggests that,
for the first time since World War II, the UK car parc has fallen
year on year – admittedly by only 22,000 units, but it has dropped
– and thereby must hang a message.
The Buckingham report, supported by British Car
Auctions, has made a projection of the car parc through to 2015 and
then split the parc into age segments. The message, is concerning
with a drop in younger cars in operation projected to happen.
While we may have an industry – retail and service
support – set up to manage a parc of the size of 2007-2008, the
chart above based on Buckingham projections, shows the traditional
‘dealer comfort zone of trading and supporting cars up to about
five years old will, at least for the next few years, have
significantly more capacity than potential demand.
The car parc only shows half of the picture.
Given the mix of vehicles introduced through the
scrappage scheme, many of those units will have extended service
intervals and as such will require less service capacity – and
offer less profit opportunity per unit as the unit value will be
lower than the historic mix.
This change in market dynamics offers a significant
change in the whole marketplace. Too much capacity, older unit
service opportunities disappeared and a smaller car parc. Not good
news for dealers.
The report suggests dealers may have to revisit
their business models and look for increased alternative profit
opportunities. ‘Finance packages’ are identified, as are series and
extended warranty packages.
However, dealers may well need to carry out a root
and branch review to regain profitability through value added,
particularly when service volumes have slipped as a result of the
recession hitting the number of new cars acquired – and the double
whammy of scrappage introducing predominantly smaller cars into the
market.
Scrappage may have offered short-term benefits in
terms of helping to hold up sales – and morale – but the programme
has caused a significant skewing of the new car market and will,
along with the lower sales caused by recession, impact on the parc
for some time to come.
The full Buckingham Automotive report,
Recession, Scrappage and Sustainable Recovery, is available free to
download on www.buckingham.ac.uk/cam.
