Parkers Still Don’t Understand The Scrappage Scheme

The Times Online have reported that manufacturers and dealerships who were previously offering loans to prospective buyers at interest rates below 4%, have been increasing said rates to over 10% for some Car Scrappage Scheme deals.

It is alleged by Parker’s car price guide that potential buyers would achieve a better overall deal by ignoring the Scrappage Scheme’s £2,000 discount by obtaining a more competitive finance deal after selling or trading-in their old car – privately or outside the Car Scrappage Scheme.

Since the Government’s announcement of the Scrappage Scheme terms, manufacturers and dealerships have protested about having to fund 50% (£1,000) of the discount subsidy. However, according to the Times Online and Parkers, manufacturer’s and dealerships now appear to have thought their away around this issue.

Compare and contrast

Toyota typically offer finance deals with rates ranging from 3.9% to 5.9% APR, subject to length of loan, terms and deposit. However, Times Online claims Toyota’s only loan rate through the Car Scrappage Scheme appears to be 8.9% APR.

The Times Online continues by demonstrating that a new 1.8-litre T2 Avensis with an on-the-road price of £16,565 is initially reduced to £14,565 when applying the £2,000 discount. However, the final cost paid by the buyer increases to £17,264 due to the 3 year 8.9% APR loan rate. This results in the buyer paying an extra £699 over the (original) list price.

The Affordable Toyota Avensis

The Car Scrappage Team have no affiliation with any manufacturer or dealership, however not for the first time, we are not convinced by Parker’s claims or Times Online analysis, and would therefore make the following comments;

Firstly, no deposit is required with the aforementioned deal (together with several others mentioned), which were featured and criticised by the Times Online. In the above Toyota deal, a buyer is paying an additional £699 over a 3 year period, i.e. £233 p.a. or £19.40 per month. So for just under an extra £20 a month, you can trade in your old banger and drive away a brand new car paid for over 3 years with no required deposit.

Secondly, if the Avensis is bought outside the Scrappage Scheme, then the list price may be £16,565, but if purchased with finance - which is usually the case, then this will also result in the buyer eventually paying more than the list price. In other words, it’s same outcome regardless of whether the buyer goes through the Scrappage Scheme or not. And this was the case prior to the introduction of the Scrappage Scheme.

The Simple Conclusion

So whichever option a buyer chooses, when buying on finance the overall sum paid will be greater than the list price. Not exactly rocket science!

We spoke to Michael Valvo at Toyota HQ who confirmed that finance was optional, with many deals and terms varying from car to car and model to model – inside or outside the Car Scrappage Scheme.

Car Scrappage.co.uk have been promised an official response from Toyota, which will be posted on this website very shortly.

Look Whose Profitting

The SMMT have said “Unlike most European scrappage schemes, which are entirely funded by Governments, the UK scheme demands an industry contribution of £1,000 to match the Government’s own input. In some cases, where manufacturer’s profit margins are low, they are not able to offer additional incentives, which may still be available on non-scrappage models and this may be reflected in the finance arrangements.”

This may be the case, but as reported here time and time again, that despite trading through challenging market conditions, watching competitors fall into bankruptcy, all while banks are being bailed out by the Government, manufacturer’s and dealerships are cutting very competitive deals with little real assistance from Downing Street.

As highlighted on CarScrappage.co.uk last week, the average UK top 10 selling car is c.£12,500 and lets assume the discount selling price is £10,500. The VAT amount paid by the buyer to the Government is £1,370, while the Government’s contribution is only £1,000. So who’s profitting from the public then?