Car dealers drive a hard bargain for 'K' day: Both sides seem happy but the 'low prices' may not be what they seem
Saturday 01 August 1992
More than 200,000 people duly absorbed the message, and this morning will drive their shiny new 'K' registered vehicles out of showrooms. Both sides of the sale are happy. Car dealers are celebrating a 5 per cent increase in confirmed sales for the whole of August,while most buyers believe they will never see a car as cheap again. But a nagging doubt remains; have we all been had?
If you care to turn up the fading newspaper cuttings of a year ago, the same message - you'll never buy them so cheap] - is evident in the headlines, following cuts of up to pounds 2,000 in the price of a new car.
And what happened? Disastrous August sales of 367,646. Coming after two years of decline, it resulted in showroom closures, car-plant redundancies and big financial losses.
The tide was not turned until April this year, following the halving of the 10 per cent special car tax in the Budget, but the trend has been extremely weak.
The harsh truth is that any buyer in the past 12 months should have been able to negotiate the same discounts promoted in the last couple of weeks. It is also likely that buyers will still be able to get them in six months.
Today's date, 1 August, is the subject of all the attention because of the new 'K' registration plate and its effect on sales. Manufacturers and dealers spend months gearing up to it. With about a quarter of annual sales made during August, the month is vital to the industry's health.
With profit margins squeezed for nearly three years since the market began its decline after record sales in 1989, dealers have suffered and many have disappeared. Geoff Dossiter, of the Retail Motor Industry Federation, believes that the future of 10 per cent of the 7,350 remaining franchise dealers - there were 8,121 in 1989 and almost 12,500 in 1973 - could depend on their success this month. But it already looks as if the tens of millions of pounds spent on advertising may have paid off.
Les Taylor, chief executive of Inchcape Motor Retail, which has 110 dealerships under names such as Wadham Kenning and Mann Egerton, selling most of the big names, says there has been a definite increase in interest. 'We started off at the beginning of June about 10 per cent down. We are now 5-6 per cent up on last year and I anticipate that continuing through August,' he said.
Last August, the main sales pitch, led by Ford, the market leader, was price cuts of up to pounds 2,000 on the least popular models. Amid allegations that consumers were being 'conned' by reductions that fell short of expectations, few manufacturers have repeated the ploy.
More common, despite the recession and poor market, are price increases. Even including the cut in special car tax, the list price of many cars, such as the Vauxhall Cavalier 1.5 GL and Ford's Fiesta 1.4 LX and Sierra 2.0 GLX, has risen by pounds 500.
Although the list price is rarely paid by the customer, it forms the basis for calculations of car tax, VAT and discounts. A '10 per cent discount' on a car with, for example, a list price of pounds 7,000 but which costs pounds 10,000 including sales tax, VAT and on-the-road charges, is thus pounds 700 rather than pounds 1,000. A form of price cutting has remained but is cleverly disguised among 'special editions', re-badged versions of the same car. Ford's Sierra Azura, for example, is priced at pounds 9,585, pounds 1,000 less than the list price of the cheapest 1.6-litre Sierra despite such extras as alloy wheels and a sunroof. The same is true of Vauxhall's Cavalier Expression, at pounds 10,100 far cheaper than the equivalent 1.6L model. Rover's 214I at pounds 10,450 on the road is cheaper than the 214SI.
Dealers are open about the reason for the new models. A Vauxhall dealer said: 'You would be mad to buy a Cavalier GL. It's more expensive, even with the discount. The Expression is the same specification but does not upset previous customers as it's a different model. They do it to shift cars in August and no Ls and GLs are being made'.
At a Rover franchise: 'The SI was too expensive against the Escort and the Astra. The I is the same car with a standard sunroof but is pounds 1,000 cheaper. List prices are protected.'
All dealers are paid a commission on cars sold. This is passed on to the consumer in varying degrees, according to the best traditions of haggling. The commission, usually 15 per cent, can be higher for larger vehicles and less for popular cars. Vauxhall caused some concern among its dealers by cutting the commission to 10 per cent for new Astra models in order to keep the list price lower than the model it replaced. For 'special editions' the commission is virtually nil.
Complications over the exact commission offered, the models available and the factory-fitted options already in place, such as metallic paint or a better stereo system, make direct comparisions difficult. It can result in barmy conversations that go something like this:
Customer: 'I would like a price estimate for an Astra 1.4 five-door LS.'
Salesman: 'Yes, well we could do you an Astra 1.4 for pounds 9,560 with sunroof and central locking as standard, that's on the road with pounds 470 extra for delivery and road tax; or you can have the 82PS 1.4 engine for pounds 10,200 on the road, that's more powerful. The Astra Expression 1.4 has the same high- torque engine, metallic paint and security etching for pounds 9,350, which is a base price of pounds 8,880 plus the pounds 470. Once you are above that, among the GLS you may as well go for the Cavalier Expression, a great buy at pounds 10,300 on the road with a more powerful 1.6 engine and sunroof. It has been a really popular car and a real bargain, we haven't got many of them left and they are hard to find.'
Even with the figures carefully written down following the ostentatious use of the electronic calculator - to calculate the discount - exact comparison is not what a dealer wants a buyer to do.
The objective is to fit individual car to individual customer, guaranteed to save embarrassment when prices are compared in office, pub or club. Every customer is convinced they have put one over on the dealer. 'Give me a break,' one dealer was heard pleading to an astute haggler this week before agreeing to a sale.
Marketing strategy this summer has taken the process one stage further, with finance packages also tailored to the individual, such as Ford's Options scheme and Vauxhall's Choices.
Ford dealers claim great success for Options, whereby a 20 per cent deposit and a low monthly payment, as little as pounds 199, can give a buyer a new Escort for two years. At the end of the period, the buyer can hand the car back, pay another deposit and start again, buy the car for a 'guaranteed' resale value or sell it privately. 'It's low-deposit, low- payment finance, really,' one dealer admitted.
The Consumers' Assocation, which is thinking of launching another inquiry into new-car prices, takes a jaundiced view of the market and says low prices are often illusory among offers of cheap insurance, low-cost loans and gifts.
'The dealers are cutting back to the bone. The villains of the piece are the manufacturers,' Simon Hinde, senior editor of the association's magazine, Which?, said. He advises buyers to wait a few weeks until the August rush is over, when dealers will have to woo customers more keenly.
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