Examination of Witnesses (Questions 140-159)
MR PAUL
WILLIAMS
20 MAY 2009
Q140 Miss Kirkbride: The German scheme
has been seen to be a big success. Do you think there is hope
that it might be as good as that here in the smaller car sector?
Mr Williams: It has been a great
success; so great they have actually extended it. This government
said, "When the money runs out that is it", but it has
been so successful in lots of different areas that they have said,
"We will continue it now". You still have queues in
dealerships over in Germany. When we did our original estimates
for Government we based the Scrappage Scheme on their details.
I do not think it will be as successful as the German one because
it does not have the same size of offer, sadly. We will review
it within three months and if we feel it is not capturing the
imagination as it should we shall go back to Government and say,
"Look, you really do need to have another look at this".
They accepted the concept, which is the annoying feature, but
they have not actually done the rest of it.
Q141 Miss Kirkbride: In terms of
helping the very important sector that you set out in your opening
remarks, is this what it is all about? In this climate, in this
recession, the only thing that Government can do is something
like a Car Scrappage Scheme and they have done it but just not
as well as you would have liked.
Mr Williams: It is quite a resolute
part of the sector. We have various operations—new cars,
used cars, servicing operations, parts, wholesaling, et cetera—so
we have one or two trading arms, but if you continue to drain
profit from those companies then they will have to have a look
at their expenses and we all know in the real world when you look
at expenses the first expense that is downsized is people, always.
It was for that reason that we have been looking at things. Certainly
when I later wrote to Lord Mandelson after the scrappage incentive
scheme we raised issues on vehicle excise duty, which came in
in April of this year, which has cost the industry over £80
million. That was never intended.
Q142 Chairman: This is the refunds
on expired licences, is it?
Mr Williams: Yes. I do not think
DVLA or Customs & Excise would turn round and say, "We'll
penalise the motor industry for this amount", but that is
a consequence of what they have done. They did it to stop people
cashing in their licences just before a Budget so they could have
a cheaper licence. It has resulted in our industry losing up to
£80 million because we can no longer cash in a tax disc as
we used to, you can only do that if you are the registered owner
and obviously to go through the whole trauma of becoming a registered
owner would be a nonsense. We asked for that to be deferred to
12 months. Not scrapped, we knew the Government would not do that,
but to be deferred, and we were told quite politely, but I am
still in correspondence I hasten to add, that would not be possible.
Not scrap it, just defer it for 12 months to give this very important
sector some breathing space. Business rates relief is a debacle
in terms of our industry because all companies have had to close
dealerships—small, medium—and those sites used to
get business rates relief.
Q143 Chairman: It is the void rate
relief.
Mr Williams: That no longer occurs.
Government and the Treasury seem to be of the view they have cured
that problem, but when I gave them the information that the average
cost of a site to a motor dealer is about £1.2 million, £1.3
million, the increase they gave in the last Budget is not worth
the paper it is printed on. We have suffered quite significantly
as a result of that.
Q144 Miss Kirkbride: So the exceptions
that they made on void rate relief are not viable for you because
your properties are more valuable?
Mr Williams: I will not mention
names, but the minister I spoke to on this had no idea whatsoever
on the average value of a motor dealership, which is why this
Automotive Unit needs to gather some momentum so we can make people
aware of what an enormously large industry it is in terms of employment
more than anything else and GDP. The automotive industry contributes
something like almost 6% in GDP to this country, which is vast.
The guys before told you what would happen if attention is not
paid to that. Make no mistake that the retail arm is as equally
as important because without somebody to sell the product that
they manufacture they might as well shut the shops and we shall
not have any manufacturing base at all then. The other item that
we spoke about was capital allowances where we asked for a 12
month period and would the Government look at giving 100% capital
allowances on medium vans and trucks. We have been in correspondence
and they tend to believe the action they have taken has done that.
We are in continuing dialogue with them but I think we have missed
the boat because it would have been ideal to have introduced that
in April. The overall point I am trying to make is we did not
ask for these things to be knocked on the head or to be abandoned,
we asked for 12 months' respite just while the industry sees its
way through. All that will happen is if companies continue to
lose money on this basis they will actually lose staff and the
cost of people when they leave us and take on state benefit will
be far greater than any one of the capital allowances or, indeed,
the reintroduction of business rate relief. There are one or two
other issues that we have been taking up as well.
Q145 Mr Hoyle: Thank you for what
you have said, I think we are both on the same idea that this
is about helping industry and helping ourselves in the UK. You
said that you agreed it was a bit short-term, one-size-fits-all
on the subsidy and we could have done better if we could have
had a bit more idea about the small car, family car, maybe even
larger car, so we could have helped right across the industry.
If we look at where we produce most cars it is in the middle,
the family size cars.
Mr Williams: Yes.
Q146 Mr Hoyle: We can agree on that.
Should we have gone for 10 years? I know you could pick any year,
but would eight or six have been better? The benefits are you
are getting rid of all the cars and for the environment it is
a win-win and the fact that we can have younger cars in the country
operating has got to be good for business but also for the environment.
Do you agree with that?
Mr Williams: I think if you had
a room of five people and asked that you would probably get five
different responses: seven, six, five, nine, 10. I think the nine
or 10 year-old car was about right in as much as it is not just
the CO2 scenario but the one thing we kept on reminding politicians
and ministers alike was the safety features. If you look at the
road safety features on a 10 year-old car compared to what they
are now, it is light years on. If somebody is trading in a car
that does not have those safety features it must be good for the
death rate on roads, et cetera, one would have thought.
Whether or not that would be the same for an eight year-old car,
a six year-old car or whatever, obviously it would not because
they were a bit better designed. I think about nine or 10 years
was about right.
Q147 Chairman: Just a couple of questions
from me on the Scrappage Scheme. When do you think the money is
going to run out at current rates of demand?
Mr Williams: I think they have
said February next year or before if the pot runs out. They have
put 300-odd million into the pot and I suspect it will not actually
run out before next February.
Q148 Chairman: You think it is probably
enough money to sustain itself?
Mr Williams: I think it is. It
will not have the impact that the German scheme had. The paper
we did actually said it would cost about £170 million to
Government over an 18 month period. If you work out the sums that
does not automatically tie up, but what you need to take into
account is we believe there will be something in the region of
225,000 extra vehicles sold in that 18 months incrementally so
there would be a VAT revenue, but if you then took the cost of
the scheme, you take off the VAT increment, the cost is about
£160 million over 18 months, which I would suggest is a lot
cheaper than retailers and manufacturers having to lay people
off over an 18 month period, the cost to the UK.
Q149 Chairman: To what extent are
you worried that the scheme may simply bring forward purchases
that would have been made in the future anyhow and in February
next year could lead to a new dip in the market?
Mr Williams: That is one of the
reasons why we said 18 months, so it did not become too protracted.
It will give a demand dip, there is no question about that, but
I do not think that is really likely. Anyone with a 10 year-old
motorcar up to February next year, or when the pot runs out, will
find it a little more difficult, I would suggest, to go and buy
a new car on the basis that they will not have the £2,000/£3,000
discount. It is a market that we never had a great impact on anyway.
I suspect that the dip will not be as great. There will be one,
there is no question, but that is why we have kept it to 18 months.
Lembit Öpik: I have to confess no
amount of incentive will get me to part with my 15 year-old Vauxhall
Cavalier 1.7 diesel; probably the finest car every built. I make
that as a rhetorical observation.
Chairman: It is a challenging thought
and we will take you up on it later.
Mr Hoyle: You polluter!
Q150 Lembit Öpik: 59 miles per
gallon. There are others, of course, who are involved who will
be considering issues of credit. To what extent are sales being
constrained by the availability of credit? We have heard a different
aspect of it from the manufacturers and now we are looking at
the consumers. What is your experience of that?
Mr Williams: I am glad because
the media seem to have got this whole issue of credit totally
wrong. There were one or two headlines some months ago now and
our members were really suffering from it because people stayed
away from the showrooms. One of the headlines was "No credit
in the showroom" because they had picked up from an SMMT
briefing or a briefing from somewhere that credit was very, very
difficult. I think what they get confused with is the different
lines of credit. Certainly the motor manufacturers who were meeting
with Lord Mandelson asked, as they have already told you, about
this line of credit. What the media did not seem to realise was
that there are these different forms and what we are talking about
is consumer credit. I was amazed at the furore that came from
the dealerships because consumer credit is still readily available.
As we speak today it is readily available. When I say "readily
available", if you have got a lot of county court judgments
or something like that then maybe you will find it as difficult
now as you did then. In terms of obtaining credit for a new or
used car you are probably asked for a bigger deposit now, 5% may
now be 10% and 10% may be 15%. Although the finance companies
will tell you that they have not actually altered their scoring
mechanism on which they base their loans, I would like to tell
you I am pretty sure they have, but I do not think it has been
dramatic because bear in mind they still need to do business.
From within the dealership network the exterior sources, ie not
the manufacturers like Ford Credit, GMAC, those associated with
the manufacturers, there is no shortage of credit availability.
Lembit Öpik: That prompts a final
question really. Do you think the Government needs to do something
to improve credit flow? From what you have said there it sounds
to me that the industry is not overly concerned about consumer
credit because while the deposits are slightly higher it is not
a controlling issue in the market.
Q151 Chairman: The previous witnesses
said inventory credit was an important issue.
Mr Williams: I am talking about
consumer credit now, for somebody to go in and buy a car on a
conditional sale over two or three years. When you look at the
manufacturers' side I think that is a totally different story.
The way that it affects our industry, as Graham may have pointed
out, is that the retail motor industry is quite dependent on the
manufacturers for stocking loans, and I mean quite dependent.
If a manufacturer, because of its inability to get funds, had
to withdraw those stocking loans then a lot of retailers would
struggle badly.
Q152 Lembit Öpik: Can I impose
upon you just to explain how that works.
Mr Williams: The manufacturer
actually stocks the used car for you effectively. You have the
car on sale or return. Effectively they build a car, they release
it and you have the vehicle on sale or return for X number of
days depending on the manufacturer. That is one form of credit
you are getting effectively. By far the bigger one is most manufacturers
will offer you the facility—not everybody takes it up, they
go elsewhere—to fund your used car stock up to 80% of its
value.
Q153 Lembit Öpik: How do they
do that?
Mr Williams: They take the value
of your used car stock and give you 80% as a loan. It is quite
a large amount of stock holding and most dealerships will need
that and always have taken advantage. A lot of companies do not
use the manufacturers for that, they go to exterior banks or lending
sources. If these manufacturers' sources of credit dries up, as
these guys alluded to, then that could cause a major problem to
our industry because the dealerships would then have to go to
the banks and say, "Can we have a stocking loan, please?"
and a great number would face a lot of difficulty in doing that.
Their problem is our problem in that field.
Q154 Lembit Öpik: You are talking
about it as a future situation. Have you seen anything like that
happening to date in terms of the used car stocking loans?
Mr Williams: Not to date, no.
Q155 Lembit Öpik: Is there anything
you think the Government specifically needs to do now to improve
credit flow or is it a watch and wait situation?
Mr Williams: Anything the Government
can do in terms of the manufacturer loan guarantee scheme can
only help them which in turn will help us. I think the guys have
been incredibly politically correct and, having accepted the concept
of it, the Government needs to get on and do it. The longer they
wait, the more difficult things get and if it does it will be
too late both for the manufacturing sector and the retail sector
in that particular area of credit.
Q156 Lembit Öpik: It is upstream,
but as far as the consumer directly is concerned that is not an
issue that particularly affects them?
Mr Williams: At this point in
time, no, it is not.
Q157 Chairman: Manufacturers offer
this facility to you for your inventories, new and used.
Mr Williams: Yes.
Q158 Chairman: Presumably you would
not have to rely on manufacturers' support for that, you could
get it from other sources of finance. Is that other source of
finance readily available and, if so, is it on significantly different
terms from those offered by manufacturers?
Mr Williams: I think in a past
life it used to be but I suspect you would not find many retailers
now who would like the source of funding for manufacture chopped
up and say, "Right, you now need to go into the open market
to borrow" because I suggest they would find it very difficult.
Q159 Chairman: Finally from me, you
listed some other issues concerning the Retail Motor Industry
Federation in your answers to Julie Kirkbride just now but there
were a number of issues you did not touch on. We have not had
the oral evidence on this, we are going to see Bentley privately
tomorrow, but they are very concerned about the Budget change
in terms of company car taxation, for example. At the margin that
is another issue of concern. Are there any of these issues that
you would like to share with us or do you think you have got everything
off your chest that you wanted to?
Mr Williams: The guys here mentioned
the Automotive Unit within BERR and that is quite important, recognition
within Government that this industry is as big as it is and wields
the influence that it does in terms of employment.
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