Scrappage and the 800lb non-compliance gorilla in the room

Champagne corks are popping and backs being loudly slapped as a lot of car makers and their dealers enjoy the undoubted success of the scrappage scheme and the ongoing excitement of an unexpectedly profitable few months. There could, however, be some snags up ahead which may end up costing the dealers all their profit and more and leave the champagne tasting rather flat. We have been digging beneath the happy headlines and PR Company spin, asking a large cross section of dealers what the real story is and whether there are any loopholes in the administration process which may ultimately result in non-compliance, meaning the money from the scheme ends up being withheld. Like the 800lb gorilla in the room that nobody wants to talk about, the prospect of selling cars at a loss in the scrappage scheme is a very real probability for some. Clearly the issues we have been hearing may have simple answers and it may be that dealers are being pessimistic about the actual reality of receiving the money owed until it is nestling safely in their bank accounts. At the very least however there certainly appears to be some confusion about certain aspects of the process which requires some clarification. For instance one dealer who has about 90 scrappage deals in the pot and is pleased about the response he’s been getting, told us that because of the demand being concentrated on the lower price range of his model line-up, It has led to demand which may not be able to be satisfied in the allotted time frame. This is what he told us. If a customer orders a car which may take up to 4 months to arrive, as long as the customer details are loaded on the system, correctly the scrappage money will be guaranteed to be put aside. However where the problem lies is in the fact that on some cars the production dates have been subject to change meaning that the car may fall outside the 4 month window. Unless the dealer deletes the customer order and completes a new one which will then re-qualify, the deal will not count and this could lead to the dealer losing the £1,000 government portion of the incentive and having to subsidise it themselves. Obviously it must be the responsibility of the dealer to ensure this happens, but with so many people in the communication chain (i.e. customer, salesperson, factory, sales manager, business manager and most importantly administrator) it is easy to see how honest omissions could happen. Another dealer told us they are concerned about the legal aspect of the scrappage cars themselves. A car to be scrapped must have a valid MOT at the point the deal is agreed but not necessarily 3-4 months later when the new car is ready. It must, however have a valid tax disc or SORN. This means that if the tax runs out after the MOT and the customer needs a current tax disc to qualify, they would have to re-mot the car in order to tax it, which of course will mean many cars, by nature of what their age, costing potentially hundreds of pounds just to ensure they qualify. All these problems stem from the delay between placing the order under scrappage and delivery of the new car. We were told by one dealer that an elderly customer of theirs was due to collect his car but that it was delayed by a week from the original agreed handover and unfortunately his tax had just ran out. Worse still because his car didn’t have a valid disc it was towed to the compound and cost him a fortune to release as he was also told that unless he taxed it within 48 hours it would be crushed. Of course because the MOT had run out he could not obtain a tax disc so the dealer stepped in and luckily the car passed so he was able to tax the vehicle but with a considerable extra cost in monetary terms and in time and, let’s not forget, considerable distress to a chap who had no experience of buying a new car in recent memory and was left reeling by the red tape.. Another dealer told us that they are now going through every order and contacting every scrappage customer to ensure that there is no possibility of non-compliance. These may not be typical and again there may be a simple explanation but it seems, from many we spoke to, that if there is the slightest chance of the government, and to a lesser extent the manufacturers, having an excuse not to pay then they will use it. This will then, of course, penalise the very people it was set up to help. As one sales manager rightly pointed out, because of the type of car mainly being purchased under the scrappage scheme, the cheaper economical cars, the profit margins are at the lowest end. If you consider that some cars are £4,995 after the £2,000 reduction there will be a potential maximum profit of probably around £500 if there is no extra form of discount. So if a dealer fails the audit on a car like this in order to fulfil the obligation to his customer the deal would end up costing him £1,500 assuming he didn’t make any money from selling the, what would now become, the part-exchange. There are many questions that need answering and it may be that in some cases cars have already been delivered with the dealer waiting to be paid out and about to find out his claim is going to be rejected. Then the fun really starts with all the positive reaction turning to despair. We will endeavour to find the answers to these concerns and get the inside track from dealers on non-compliance issues and their impact. One other thing to note is the apparent turning up at auction of supposedly “scrapped” cars...much to the surprise of their previous owners! The result of someone pulling a fast one with the paperwork? Who knows? One thing is for sure, scratch away the surface and things are not as great as many would have us believe.

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5 Responses to Scrappage and the 800lb non-compliance gorilla in the room

  1. Ian Thompson August 6, 2009 at 7:45 pm #

    Your article is incorrect regarding car tax. After the new vehicle has been ordered, the car being scrapped can be taken off the road and declared SORN. The issue is where the customer has no place to keep the car off the public road, where it must be if there is no disc displayed. If the MoT and car tax run out while you are still waiting for the new one, it can still partake in the scheme. Indeed, on the day you order the new car, the ‘scrap’ car can have no Mot OR car tax as long as they have expired no more than 14 days previously.

  2. admin August 6, 2009 at 8:22 pm #

    Thanks for the heads up but this is the point really. The old car entered into the scrappage scheme will have to be stored by the owner (if they are not still using it) until such time as the new car is delivered, which could be months in the future, leading to all sorts of potential issues on handover day. Presumably in many cases the car being scrapped is still being used on the road so will need tax, mot and insurance. In our opinion the problems stem from the amount of time between order and delivery.

  3. nigel August 6, 2009 at 11:30 pm #

    Lots of these cars aren’t even being scrapped but just being sold in a poorer part of the planet to continue polluting. Its a typical ‘not on my doorstep’ so called green policy from this circus parade which is our current UK government.

  4. Ian Thompson August 7, 2009 at 1:16 pm #

    They ARE being scrapped in the UK. They have to be crushed for the vehicle breakers to get paid. You may have read about the fraud goung on in Germany where the ‘punter’ has to scrap the car to get a certificate of destruction, a system open to abuse but here, the dealer has to get rid of the car for you.

  5. admin August 7, 2009 at 1:22 pm #

    Interestingly enough we have heard about some cars ending up at the auction that the original owners “thought” were headed to the scrappage scheme so were quite puzzled when contacted by the purchaser. How widespread this is or what stunt was pulled with the paperwork we don’t know.

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