As the 'shame' of buying a new car fades, sales rise
The scrappage scheme and dealer incentives have made owning a new car a badge of prudence, writes Jerome Reilly
IT'S a bit of a stretch to describe the car scrappage scheme as an "economic stimulus package", but the modest incentive has given the motor trade encouraging traction.
Importantly, the €1,500 State payment to scrap old cars has taken the shame out of owning a new car.
Last year, even those who wanted or needed new wheels were reluctant to pay out. People feared resentment from neighbours and friends if they parked a brand new '09 in the driveway. It became a psychological barrier which further depressed new car sales which plunged 62 per cent last year compared with 2008.
The Society of the Irish Motor Industry (SIMI) said 57,460 cars were sold in 2009, compared to 151,607 in 2008.
However, SIMI said new car sales for the month of December stood at 304, up 61.7 per cent on the same month in 2008 and despite the cold snap, the first few days of January have also been encouraging.
The State scrappage scheme and a range of manufacturer incentives on low cost, low tax, low emission cars has made owning a 2010 model a badge of prudence and frugality rather than crass fecklessness.
And after thousands of jobs were lost in the last 12 months and dozens of dealerships ended up on the scrap heap, one car manufacturer has laid down the gauntlet to competitors in the motor trade.
Any business opening in the current climate should be a cause for joy and on February 3, Audi will open a new 1,400 sq ft showroom over two storeys in Ballsbridge, Dublin. It will be one of the biggest showrooms in the capital with room for 18 cars inside the state-of-the-art building
With such major dealerships as EP Mooney going to the wall (with a liquidation sale of stock planned for next Saturday), Audi's investment is a welcome fillip.
"We have followed an approach almost of counter-cyclical investment. It's in tough times that brands have to prove their character. 2009 was the first year in which we exceeded BMW sales and that was obviously very pleasing to us and a lot of that has to do with the approach of offering really good prestige value especially in diesel engines in the modern C02 era," Audi Ireland chief Fintan Knight told the Sunday Independent.
He said that Audi will be spending €3m over five years in Ireland on developing their business infrastructure.
"The thinking behind it is that as a brand in troubled economic times, we need to have a strong representation: to reinvest and restore the faith that customers have put into the brand," he said.
He added that it was important for all brands to send out a message to customers that they are here in Ireland for the long term.
"As economic winds change, some things stay the same. 2009 was the year of our 100th birthday so we have been around for a long time. We have seen a lot of depressions and it doesn't help to pull down the shutters and fire all your people and leave. In fact, we have added people to our staff. We have taken the HQ staff from six people to 14 and at the Audi Centre in Ballsbridge we have added another 10 so that will take us up to 26 people employed.
"By industrial standards it's small, but for an automotive business it's a significant increase," Mr Knight added.
Interestingly, he doesn't expect the scrappage scheme to have a major impact in terms of increasing sales of prestige brands such as Audi, Mercedes and BMW.
"It applies to vehicles over 10 years old which, by that stage, are at a value of say €3,000. Add another €1,500 on top from the scrappage scheme, and you're talking about a customer spending another €23,000 for an entry level prestige car. The impact of scrappage is not significant for prestige brands," he added.
However, he believed that there was some cause for optimism." Even in difficult times, people can still take a look at the high entry price of a prestige car and then consider the costs of the car over its entire lifecycle. For example, the road tax of A3 1.6 Tdi or even an A4 Tdi 2 litre is now at €156 a year -- and that pays over time. Many people out there are driving petrol models which they bought three or four years ago before the tax changes. It now makes sense to change to something with lower running costs," Fintan Knight said.
Society of the Irish Motor Industry chief Alan Nolan said that there was a "genuine confidence" coming back into dealerships. "Dealers have been seeing a lot more interest, more people calling in and deals done," he said.
Sales last year fell by two-thirds from 2008, but the scrappage deal boost is expected to add as many as 10,000 to initial 55,000-60,000 projections for this year. Mr Nolan said the industry now expected around 70,000 drivers to buy a new car this year.
Mercedes sold 55 E-class models in the first days of the new year. Astonishingly it means the prestige marque has the fourth best-selling diesel car so far for 2010.
Car dealers around the country have been stymied by the bad weather and there is a level of frustration. But they believe that there are customers out there.
SIMI press officer Suzanne Sheridan said, "We can already see a shift in consumers' purchasing decisions. Low emission cars in categories A and B accounted for 55 per cent of total new car sales in 2009, up from 27 per cent on the previous year. With this environmentally-focused scrappage scheme, we expect a further reduction in our overall CO2 emissions. Consumers should shop around for the best deals in the A and B category cars."
There is no doubt that financial confidence is on the rise. Last week a new survey indicated that Irish adults could be coming to believe the worst of the economic crisis is over.
The Standard Life Financial Confidence Index has shown an increase for the first time in 21 months, rising 2 per cent to 54.6 per cent in the quarter to December last year.
The lowest point was recorded in September 2009, when the index reached reached 52.6 per cent, compared with its all-time high of 66.7 per cent in March 2008.
"This is the first increase in nearly two years and hopefully increased confidence signals a positive impact for the real economy," said Brendan Barr, head of marketing at Standard Life.
"Our latest survey was taken during the second half of December, after one of the toughest Budgets in years, so this is even more encouraging news."