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New consumer laws 'could hit dealer margins'

Financial Conduct Authority guidelines and new customer rights legislaton could lead to customers paying higher prices for used cars.

iVendi says the FCA guidelines may squeeze margins available from finance and insurance products while the forthcoming Consumer Rights Bill currently making its way through Parliament could mean that all dealers start to prepare used cars to a higher standard.

Director James Tew said: “Traditionally, the used car market provides a choice that is almost unacknowledged but true, that for seemingly identical cars, there are a wide variety of options in terms of pricing and condition.

“For example, at one extreme, you may have a manufacturer approved car from a franchised dealer that is in a condition and has a support package similar to a new car. At the other, you may have a local, independent dealer that sells a similar car with a much lower degree of preparation and offers no more protection than a three month warranty. The difference in price between these choices can easily be 20%.

“If it is effective, the Consumer Rights Bill may ultimately take away this choice. All vehicles will have to be prepared to a relatively high standard and will be priced accordingly, with the market differential much reduced.”

Tew said the FCA may have a similar effect on pricing, as it could potentially remove some of the unit profitability that the dealer achieves from each vehicle.

“Again, if the FCA measures are successful in increasing competition when it comes to products such as motor finance and GAP insurance, and profits are reduced, then dealers may simply have to move the margin elsewhere.

“It is a long-established marketing approach among some dealers to price cars at the bottom end of the market and then rely on selling finance and insurance products to the customer in order to make a workable profit. This may no longer be possible.

“The combined effect of these new moves to protect consumers may be to create a flatter used car market with a more uniform proposition, but one where the vehicles themselves carry more expensive windscreen prices.”

> More information on the Consumer Rights Bill.

> More information on the FCA changes.

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  • wayfwrd - 29/08/2014 12:43

    James Tew,demonstrates that he has a great depth of knowledge in this matter,he really sums up the spectrum of retail offering admirably. Legislators really do need to adequately consider and determine the cause and effect before changing legislation which in my view, will do no more than limit consumer options and choice, ulitmately shrinking the business of used car retail which could at its extreme see 5 yr old plus vehicles being removed from the retail spectrum and increasing the under belly activity in the industry.