Chancellor Alistair Darling hopes his introduction of a scrappage scheme in last week's Budget will save the UK's motor industry. Under the scheme which starts next month drivers will get 2,000 off a new car when trading in their old bangers. To qualify for the discount the cars must be 10 years old and registered before 31 July 1999. The temporary scheme will run until March next year.
The move has been long overdue, according to the motor industry. Paul Williams, chairman of the Retail Motor Industry Federation, says: "The introduction of a vehicle scrappage scheme will boost the new car market, encourage consumers to get back into showrooms, and reduce the likelihood of employee downsizing in this sector."
The motor industry has been facing its biggest crisis for decades as struggling drivers have been cutting back on new wheels. The number of new cars sold in March slumped by almost a third compared to 12 months earlier. However, the RMI National Franchised Dealers Association reports sales of second-hand cars are going well. Sue Robinson, director of the NFDA, says: "While new car sales in March were still well below the numbers seen in 2008, according to our car dealer members, used car sales in March 2009 were still robust."
But those people snapping up a second-hand motor to save cash could be making a false economy. The latest figures from Parker's a monthly motor price guide shows new cars are cheaper than used ones.
The company found an 08-plate Vauxhall Corsa 1-litre Life model with 5,160 miles on the clock for 6,494. But a new 09-plate of the version is available from dealer Arnold Clark for nearly 600 less at 5,995. It also found a new Mazda 6 cheaper than a used model. An 08-plate 1.8-litre S model with 2,500 miles is available at 12,499. The same model with a new 09-plate is on offer for 1,000 less at 11,485 from car supermarket Cheap-Cars-Online.
Simon Harris, Parker's consumer editor, says: "This is the first time since 1972 we have seen used cars command a premium over new ones. There are savings to be had on a significant number of big-selling models."
The anomaly has happened because fewer people are replacing their wheels since the recession started. They're sticking with their old models for longer as a cost-saving exercise. But that has led to a shortage of good-quality used cars. Consequently prices have risen sharply in 2009. In fact, the April edition of the CAP Black Book which records motor industry sales figures reveals a record rise in used-car trade prices. For many years April has seen a typical 2 per cent reduction in trade values but this year values are increased across all 05 to 08 plates by an average 5 per cent, CAP says.
However, the trend is not a permanent one, says Harris. "A used car is always worth less than a new one... the market will correct itself. Meanwhile, people should shop around."
Motor manufacturers are offering a range of tempting deals until the end of June. There are lots of discounts available as well as free "extras" (see box below). A new trend is free payment protection insurance which pays out the cost of the motor loan if you lose your job. Honda, Nissan and Renault are all offering versions of the deal. Tom Gardner, head of marketing at Honda says they are offering the free cover because "everyone's a bit nervous about buying a new car".
This weekend could be a great time to start haggling as dealers are keen to meet their sales targets. Buyers shouldn't stop at negotiating discounts business is so slow that you should be demanding free extras such as an extended warranty or service package. And don't restrict your cost comparison to the forecourt. Look around elsewhere for bargains and ask your dealer if they can beat it. There are a lot of online car sellers such as Autotrader. co.uk, or you could buy at auction.
But there are even bigger money-saving opportunities to be made by shopping around for motor finance. More than half of car buyers take up the forecourt finance offered by a dealer. The Finance & Leasing Association reports that some 52.9 per cent of buyers used dealer finance to purchase their new car in the past 12 months. Of them, 48 per cent bought through PCP (personal contract plan), 44 per cent through HP and 6.3 per cent through leasing. If you're not sure what PCP or HP is, bone up on motor finance before you buy the savings could run into thousands of pounds.
With a PCP, you agree with the dealer the amount you need to borrow and make reduced monthly payments for an agreed period, often two years. At the end of the period, you can either pay the outstanding amount to own the car outright, hand the car back to the dealer, or trade it in against another car. PCPs offer flexibility and an easy way to upgrade to a new car.
Hire Purchase is the more traditional way to finance a car but you don't own it until your have paid off the loan. If you have a two-year deal the monthly repayments are a lot more expensive than PCP. The third option, leasing, is effectively long-term car rental and you can't trade in the vehicle against a new one as you can with PCP.
They key with all the finance deals is not to accept the first offer. Go online to find out how much banks and other lenders may charge you for a car loan. Unsecured loans are more expensive and more difficult to find but there are still good deals around.
Andrew Hagger, of Moneynet.co.uk, reports: "The average personal loan rate for a 5,000 loan has increased by 1.88 per cent over the last 12 months, so be careful not to pay over the odds for your finance. But there is still plenty of competition in the loans market and a 'best buy' loan of 5,000 is only 2.27 per month more expensive than this time last year."
He points out that the extra 82 that a car buyer will pay in interest over three years will easily be more than offset by the lower forecourt prices. "However, if consumers don't choose their loan provider carefully, they could pay over the top to the extent of 36 per month or 1,296 over three." Moneynet.co.uk found that of the personal loans on offer, YourPersonalloan. co.uk at 156.04 a month for 5,000 over three years came out as the best buy and Black Horse at 191.97 a month proved the most expensive.
Compare the cost of dealer finance against a quote from lenders and ask dealers to match it. Or ask for more discount on the price of your motor in return for taking the forecourt finance. Desperate dealers will negotiate.
New cars: the best offers
Car makers are desperate to get some heat back into the motor trade. Many are offering 0 per cent finance deals or massive discounts. But here's our selection of some of the other offers. All are available until the end of June.
* Audi: Free S-line trim worth 880 on its Q7 S line models. This includes 20in alloy wheels, sports seats and a leather multi-function steering wheel.
* Citroën: Already offering its own cash-for-bangers scheme paying up to 2,000 for trading in used cars registered before 2000.
* Daihatsu: Free five-year warranty and five-year free roadside assistance.
* Ford: Free Bluetooth connectivity and voice control as well 500 off a Fiesta. Free sports pack worth 500 with a Mondeo.
* Honda: Free payment protection insurance against redundancy.
* Jaguar: Upgrade from SE to Sport Premium worth 2,468, including sport suspension, 18in alloys and rear spoiler.
* Nissan: A "Just in case" package, which covers the loan cost for 12 months if you lose your job in the first year of a finance agreement.
* Renault: Free payment protection insurance for the first 12 months.
*Volvo: Three years' free servicing.
Used cars: how to avoid being sold a dud
Maggie Game, head of Direct Line Car Insurance advises: "Have the car inspected by an expert. A professional check costs less than 100 and can save expense and heartache."
* Examine a car's full service and MOT records check the recorded mileage has gone up not down. Also check on the V5 document that addresses, chassis details and number plates agree.
* Inspect the car in daylight.
* Check, through an HPI check (01722 422 422), that the car has never been written off or isn't still on HP.
* Invest in a professional inspection.
* Look for low mileage, single-owner cars with full service history.
* Spend time looking for the best vehicle. For every bad one you reject there will be a good one waiting.
* Top-of-the-range models are easier to re-sell. Colour, too, is important white cars are harder to sell, as are cars in brown, orange, or lilac.
* Always ask: "Would I buy a used car from this person?"
* Haggle. Minor defects will need to be repaired, so use them to bargain.
* Take the car for a test drive on different types of road at a range of speeds but check you are properly insured first. Try the heating, air conditioning and CD player.Reuse content