Why dealers can't afford to ignore salary sacrifice
According to new data from the Society of Motor Manufacturers and Traders (SMMT), new car registrations grew in March for the first time in five consecutive months – the market's best performance in the post-pandemic era.[1] However, as trade disruption and economic uncertainty weigh heavily on both vehicle manufacturers and consumers, fundamental concerns remain.
Indeed, with UK wage growth lagging behind inflation, the cost of everyday life is impacting vehicle sales. A survey conducted by AutoTrader highlighted that 62% of UK consumers spent less on non-essentials in 2024. Just 45% were confident in being able to afford their next car.[2]
While the effect on sales volumes is obvious, there has also been a decrease in high-margin, high-value sales. Around 70% of dealers say that customers are looking to purchase cheaper vehicles, while 65% are cutting back on options.[3]
These challenges are further compounded by rising vehicle costs. Over the past decade, average list prices have increased from £27,035 to £45,218 – a 67% hike.[4]
If we put finances aside temporarily, there remains mounting pressure to accelerate the transition to electrification. So far, it's working, with March recording a 43% increase in Battery Electric Vehicle (BEV) sales compared to last year. This means that BEVs and Plug-in Hybrid Electric Vehicles (PHEVs) currently make up 28.9% of new car registrations.[5]
While this is positive news, there's no escaping the fact that BEV models still command a price premium. At a time when consumers are hesitant to make big purchases, this poses a conundrum.
One of the most powerful ways in which the government is de-risking new vehicle access, while enabling consumers to enter the EV market, is via salary sacrifice. For dealers, this can offer a vital sales pathway.
In a nutshell, salary sacrifice sees an employee and their employer develop a benefit agreement to reduce pre-tax income in exchange for a non-cash benefit – in this case a leased car.
It is important to understand that salary sacrifice schemes affect personal tax considerations, such as Benefit in Kind (BIK) tax and National Insurance Contributions (NICs). Leasing a car through salary sacrifice decreases pre-tax income and may lower NIC requirements. However, at the same time, it also means that the employee must pay BIK, which is based on the car's P11D value, CO2 emissions, and the government-set BIK rate. Even still, salary sacrifice schemes can offer substantial savings versus private leasing; in some cases up to 60%.
Navigating salary sacrifice can be challenging for employees and employers. Providers of quality schemes can make the process far simpler. Indeed, some operate specialist schemes that include insurance, servicing, maintenance and breakdown cover, in a single monthly price. Often this service can be branded to individual dealers and/or OEMs, which allows them to sell more cars at full price, have first option to fund them, own the complete customer journey and provide the full brand experience.
Facing cautious customers and volatile economic times, UK dealers are rightly concerned about vehicle sales numbers. Simultaneously, the government is aiming to increase the percentage of EVs in the UK fleet. Salary sacrifice schemes can offer a vital solution that is beneficial for all parties. By promoting accessible salary sacrifice schemes, dealers can overcome cost barriers, drive sales, and accelerate the electric transition.
[1] https://autovista24.autovistagroup.com/news/uk-new-car-registrations-bounce-back-as-zev-mandate-changes-announced/
[2] https://www.autotraderinsight-blog.co.uk/auto-trader-insight-blog/is-consumer-confidence-collapsing
[3] https://www.closemotorfinance.co.uk/cost-of-living-crisis-impacting-car-buying
[4] https://www.autoexpress.co.uk/features/366288/why-are-new-cars-so-expensive-inside-story-car-price-rises
[5] https://www.smmt.co.uk/best-month-ever-for-new-ev-registrations-but-market-share-misses-mandated-target/
"Why dealers can't afford to ignore salary sacrifice" was originally created and published by Motor Finance Online, a GlobalData owned brand.
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