September 16, 2013
The simi swappage schema
The Society of the Irish Motor Industry (SIMI) recently announced a scheme that they will propose to government in the build up to Budget 2014. The scheme aims to boost new car sales, create up to 2,200 jobs and generate additional revenue for the State to the tune of 129 million Euros. Known as “swappage”, the initiative seeks to persuade the government to reduce VRT (Vehicle Registration Tax) by €2,000 on all new vehicles where a car being traded in as part exchange in the deal is six years of age or older. It is hoped that sales will increase from a projected figure of 73,000 units by this year’s end to 90,000 units in 2014. Speaking at the unveiling of the scheme to journalists in the Westbury hotel in Dublin, representatives from the SIMI were stringent in their assertions that strong action is required at governmental level in order to increase new car sales and that these sales will ultimately benefit the consumer and the State.
Oddly, the ‘swappage’ scheme is not strictly an entirely new idea. In 2011 Volvo used the term as part of a sales strategy aimed at clearing the stock of their outgoing models. The hope was that customers would not only purchase a cheaper version of Volvo’s new cars but it would also provide the dealer network with some used car stock which it could use to satisfy customers who were not in the market for a new car. This time around, all manufacturers will automatically take part as the reduction in new price would be subsidized by the government’s relinquishing of a sizable portion of VRT.
This brings us to the amount. Two thousand euros is a considerable discounted sum on some vehicles purchase price. Indeed some vehicles VRT liability is less than €2,000. In instances such as this, it is presumed that the VRT would essentially be written off. In the family hatchback segment, where vehicles typically cost in the region of €23,000 to €25,000, the net effect of the reduction in VRT will result in prices dropping by the full €2,000. It has not yet been clarified by the SIMI, whether this discount is granted after all other negotiations for the sale of vehicle have taken place.
Alan Nolan, the Director General with the SIMI, clarified why the system focused on vehicles six years of age and older when he informed the audience that a two year long survey conducted by the organisation found that circa 70% of all cars traded in to dealerships are five years old or younger. The emphasis, therefore, of the new system is to capture an untapped audience. By reducing the cost to change (the amount required to bridge the gap between the car being traded in and the new vehicle being purchased) the SIMI are confident that more customers with older cars will be attracted to purchase new cars. The problem with availability of credit was briefly mentioned but there was no suggestion that many customers who might be able to afford a new car are redirecting their finances elsewhere and that part of the problem with dismal new car sales is that many customers simply do not want to enter into a finance arrangement. What was equally noticeably lacking was the admission that cheaper, nearly new, used cars have the effect of distorting new car sales. Furthermore, it appeared as though the SIMI were under the impression that many customers with six year old cars are the original owners. Many drivers of vehicles in this age bracket might have simply traded up to their vehicle from an older model and therefore have already exhausted whatever credit they had in order to purchase this car.
The scheme has been submitted to government officials to deliberate over in the lead up to the forthcoming budget. The scrappage scheme, which operated in a similar vain to this latest proposal but differed crucially in that the vehicle being traded in needed to be ten years old and legally had to be destroyed, brought much needed jobs to the motor trade and revenue to the government coffers but very little by way of profit to the motor dealers or used cars to consumers. If this latest proposal is successful in finding it’s way onto Minister Noonan’s budget it could provide a much needed shot in the arm to a drastically sick sector of the economy.
