VAT rise fuelling new car sales

News Article - 05 July 2010
Category: Regulatory

One in eight UK citizens plan to bring forward a new car purchase to take advantage of the 17.5% VAT rate before a 2.5% increase in the early part of next year. A recent study of 2,000 people by GfK NOP following the emergency Budget revealed that many of the 40% of British motorists planning to buy a new car in the next year will be pushed to purchase before January 4^th 2011.

The impact of the VAT increase will also be felt in used car sales. In the study, 12% of respondents said they will consider buying a used car ahead of January 4^th, despite second hand cars being VAT exempt.

This will no doubt be positive news for car manufacturers who struggled to cope with the financial impact of recession. Industry reports have shown a gradual increase in supply and demand over the last 6 months; the VAT rise should continue to push demand up into the latter half of 2010.

Osborne's Budget is also likely to affect the type of car people buy in the future. The increase in insurance tax is making a quarter of car owners consider replacing their current vehicle with a smaller model in order to reduce insurance premiums.

Car manufacturers will feel the positive effects of the Budget for some time, but should be aware the economy has not entirely stabilised and is unlikely to for some time. Measures must be taken to ensure the market doesn't markedly dip following the VAT increases; manufacturers may consider absorbing the VAT and insurance increases themselves to maintain market share at such a crucial time.

Internal measures should also be taken to increase company adaptability and efficiency in the face of unstable demand. Access business software can help manufacturers respond more successfully to supply and demand by giving key management figures better information and more control over all aspects of the project cycle. Budgetary control, for example, allows actual costs to be linked to specific projects and compared with up to ten pre-set budgets. The business can also allocate sales revenue to individual jobs so that profitability by any category, such as product or customer, can be analysed. By keeping track of both the original budget and any notable deviations, firms can help ensure projects stay on track financially and are returning a healthy profit.

For more information, please call Access on 0845 345 3300.

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