Fleet News

News analysis: sweetening the car buying pill

WHY are new car sales booming? The economy is apparently on the brink of recession, manufacturing is in the doldrums, and mortgage repayments are accounting for an ever-greater share of income as house prices continue their heady ascent.

Yet new car sales for the first seven months of 2002 point to an all-time annual record of 2.5 million registrations, ahead of last year's bumper sales harvest.

But while fleet sales have been remarkably consistent at a smidgen over one million new cars a year since 1997 - the fleet market's predictable consistency proving a key attraction to manufacturers - the sharp acceleration in new car sales has come from the retail sector.

Private buyers may be fair weather friends, with their demand for new motors drying up at the first sign of a hike in interest rates or chill economic winds, but when the good times roll they offer high margin business. Or at least they did.

Research by Fleet News has uncovered a spate of special retail offers to assuage the concerns of private buyers over finance rates and insurance costs, and special editions with enhanced specifications have helped to stoke demand at a time when retail spending in general is on a knife edge.

Since the widespread car price realignment that followed the New Cars Order 2000, cars have appeared better value than ever to retail motorists - despite the fact that the cost of change has little altered due to the decline in residual values of trade-in models.

Yet as manufacturers prepare for the plate change on September 1, a raft of enticements is attempting to woo potential customers to showrooms.

Whether it is cheap finance, cashback or special editions based on humble models with several hundred pounds of options thrown in, the amount of activity and effort directed at persuading consumers to part with their cash during the summer is overwhelming. And even the latest models are not immune.

Ford, the UK's market leader, is offering the new Fiesta (launched in April) with 0% finance on some models. The Focus and Mondeo have low rate finance while the Ka and three-door Fiesta (old shape) come with a year's free insurance.

Vauxhall is offering 0% finance on some high-performance models and there is free insurance available on the Peugeot 106 and 206, 0% finance on 406 and Coupe models plus free or low rate finance on the Partner van.

Cashback king Citroen is giving customers £3,000 off all Synergie models - now in run-out before being replaced later this year by the new C8. Customers can also benefit from £2,600 cashback on entry-level petrol C5 hatchbacks, £2,000 on all other C5s and up to £400 on the new C3 with the exception of the new 16-valve 1.4 HDi.

While these deals might benefit employees taking a cash alternative to the company car, the cashback offers are effectively price cuts which do not impact on benefit-in-kind tax. Company car drivers pay tax on the official list price of a car, not the acquisition price.

One way round this situation is enhancing the specification of a car for no extra cost. SEAT has improved specification on the new Ibiza, Arosa and Leon models at no extra cost and cut official list prices on Toledo and Alhambra models.

These are changes that offer a real incentive to company car drivers and retail customers, and have an impact on benefit-in-kind tax bills.

However, the zeal with which manufacturers are trying to enhance the appeal of their own products underlines the competitiveness still rife in the industry, just two years after most cut their list prices by about 10%.

A spokesman for the Society of Motor Manufacturers and Traders said: 'Some manufacturers seem to favour 0% finance, while others are offering free insurance or throwing in air conditioning as standard. All of this is aimed at swaying the consumer in favour of one manufacturer's model over another.'

Perhaps the market needs these sales catalysts to drive sales, as consumers no longer feel the need to change cars with three-year regularity.

The change to the generally confusing twice a year plate change has reduced the pressure to keep up with the Joneses next door, as fewer people understand how the plate reveals a car's age, while greater vehicle reliability acts as a further incentive to extend holding periods.

Marketing initiatives combat this consumer inertia, and Ramesh Notra, economics editor at motor industry analyst CAP, said: 'We could expect to see 400-450,000 new cars sold in September, with up to 25% privately financed. When we look back to about 10 years ago, 500,000 units was seen as a great result in August, when there was just one registration plate change a year.'

New car offers, incentives and deals

  • Alfa Romeo: PCP schemes on 147 and 156 from £199 and £249 per month respectively
  • Chrysler Jeep: Free insurance on Neon plus £1,000 off PT Cruiser, and free heated leather seats on Jeep Cherokee
  • Citroen: £980 cashback plus free insurance on mainstream Saxo, £1,500 cashback on Saxo VTS, £700 cashback plus free insurance on Saxo 1.1i Forte, £400 cashback on C3 except 16-valve 1.4 HDi, up to £1,265 cashback on Berlingo Multispace, up to £1,870 cashback on Xsara, up to £1,770 cashback on Xsara Picasso, £2,000 cashback on C5 with £2,600 off 1.8LX manual saloon, £3,000 cashback on Synergie
  • Daihatsu: Limited edition Terios Ozone with £2,300 of extra features for £1,000
  • Fiat: Seicento starts at £4,995 (£1,000 reduction), Punto starts at £5,995 (£504 reduction), Stilo starts at £8,995 (£1,840 reduction) plus £1,000 off Multipla and £700 cashback on Doblo
  • Ford: Free insurance on Ka and old three-door Fiesta, low rate finance on new Fiesta, Focus and Mondeo
  • Honda: Civic Vision with free air conditioning, metallic paint, a CD player, side airbags, remote central locking and heated electric mirrors, launch of CR-V SE Executive, extra equipment on Accord following recent price cuts, interest free hire purchase on Civics and HR-V
  • MG Rover: Special edition Rover 25 and 45 Spirit, featuring alloy wheels, electric sunroof, remote central locking
  • Mitsubishi: Low rate finance and special editions
  • Nissan: 0% finance on Micra, Almera, Almera Tino and Primera with special editions and free insurance on selected models, low rate finance on petrol X-trail
  • SEAT: increased specification and/or list price reductions across the range
  • Vauxhall: 0% finance on many models plus free insurance on selected models, cashback on selected Corsa, Astra and Zafira
  • Volkswagen: Free insurance on Polo E and S models
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