HPI, the vehicle information company, has called into question the lack of confidence and confusion over the way new vehicle excise duty (VED) will be administered.
Martin Keighley, HPI’s used car valuations expert, said the effect of VED changes on used car values and buyers of higher emissions cars will remain to be seen.
He said: “Overall market confidence has been buoyed by the reduction in VAT; this will provide some help to dealers with used sales on the VAT margin scheme, but only by £25 per £1,000 profit.”
Paul Brown, tax director for Trevor Jones, believes that while on an item-by-item basis the VAT cut may be relatively small it will have a positive impact on the spending power of all but the least well off.
However, he adds: “It seems unlikely that the prospect of a cut of £425 in the price of a £20,000 new car, combined with the relatively minor impact of the personal tax changes announced, is enough to tempt hordes of buyers back into car showrooms.”
Market confidence dented
Furthermore, Keighley believes overall market confidence has been dented first by the fact the VAT reduction is only temporary and secondly by proposed increases in duty, with a vast increase in borrowing being encouraged by the Chancellor.
This is supported by Brown: “The sting in the tail of course is that the VAT change is only temporary, and by 2010/2011 everyone, dealers included, will be paying for the Chancellor's rescue plan through increased levels of tax and National Insurance contributions, both those announced now and those that may well drip through in time.
“Added to this, duty on petrol and diesel will increase in order to negate the effect of the VAT decrease on fuel. There was nothing to indicate this increase would be reversed when the VAT rate returns to it current level, meaning this will represent a real terms increase in duty from January 1, 2010.”
Keighley said: “For whatever the reason, the differential between petrol and diesel has increased to 15p per litre. This means that unless you are driving roughly more than 10,000 miles per year, for most people the petrol will be the more economical choice.”
Both Keighley and Brown believe the impact of the budget on the motor trade will largely depend on whether it has the desired effect of stimulating immediate demand within the economy.
Keighley said: “While the measures are welcomed, overall motor trade profitability will hinge on whether the economy recovers according to the Chancellor’s timetable.
“Unemployment will probably continue to rise, further reducing demand in the used market, and new car stocks are too high, hence supply will also continue to rise. These are the ingredients for a recipe of falling used car valuations and in turn, profits.”
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