Sales may return to familiar levels when scheme ends

The retail car trade is set for a major shake-up on December 31st with the ending of the scrappage incentive scheme which will cut off a highly lucrative income source for the motor industry.

An all-time record for new car sales of 130,000 - expected to be announced at the the end of the year - is proof of the impact of the scheme which offers a £1,000 reduction in vehicle registration tax when a car in excess of 10 years old is traded in for a new model.

Next year the figure is likely to fall back to about 110,000, with the drop largely accounted for by the conclusion of the scheme under which at least 50,000 cars have been scrapped.

For its part, the motor industry is hoping that the introduction of a compulsory testing programme by the Government next year will encourage motorists with old cars to change them for new ones.

The Society of the Irish Motor Industry (SIMI) also claims that if the December Budget reduced Vehicle Registration Tax to a flat rate of 20 per cent, the current levels of new car sales could be maintained.

Irrespective of any change on this front, the general buoyancy of the economy is expected to maintain demand and the industry is likely to produce its own new offers in an attempt to boost sales momentum.

In the meantime, during the next few weeks there will be sharp competition between car dealers as they bid to extract the maximum benefit from the final days of the scrappage scheme which was introduced in 1996. Advertising and marketing budgets have been increased in this regard.

The £1,000 VRT reduction provided under the scheme is often matched - or even bettered - by the car companies themselves.

One dealer predicted that during the next month and a half there would be the most frantic car-selling period ever experienced here.

But for buyers looking to pick up a cheap new car, while ridding themselves of their ancient banger, there are several factors to consider.

First, while there are many attractively-priced new cars, do not automatically expect the model you want to be available.

In addition, if you find the model you want, it is highly unlikely you will find the colour you prefer.

This is because there are severe stock shortages in the segment of the motor trade where scrappage offers tend to be made - at the middle and lower ends.

When dealers say their offers are subject to availability, they really mean it. "You have to be prepared to accept a compromise," said one dealer. "For example, metallic [painted] cars are extremely thin on the ground at the moment," he added.

Buyers should be aware that offers advertised as "extras" such as air bags, and power steering are now generally standard on many new cars - regardless of the scrappage scheme.

The same can apply to some of the price reductions being offered.

All dealers have a 10 per cent margin on the sale of any new car, this is what a customer and dealer haggle about when a car sale takes place.

Therefore, a reduction of £1,000 on the marked price of a car costing more than £12,000 is not especially generous.

When a car is being scrapped, dealers also have the advantage of not having to sell on a model which has been traded in. They also know that the customer effectively has an extra £1,000 in cash in his or her pocket.

Nissan, for example, is currently offering free insurance cover to entice scrappage buyers. Not surprisingly this does not extend to drivers below the age of 30.

Other manufacturers, like Toyota, have tried the bait of insurance cover before and found the results unspectacular. This is because it is extremely difficult to make drivers who already have policies elsewhere, change over to another insurer, dealers say.

Ironically the only group with no such allegiances - young drivers - are not covered by any of the insurance offers associated with scrappage deals.

Anybody who thinks they're clever by scrapping their car in 1997 and then waiting to purchase a new car next year, is mistaken. Both the scrapping and the purchase of the new car must be done by the end of this year.

It is also worth remembering that while dealers advertise a recommended price, in most instances there remains significant scope for further bargaining. So there is every reason to go in and try to do a little haggling.