Is it time for a new round of car scrappage?

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In the late spring of 2009, the UK Government, led by Alistair Darling’s April Budget, introduced a car scrappage programme. The idea was a seemingly simple one:

offer car buyers £2,000 if they scrapped a car older than ten years and bought a new one in replacement.

On the surface, the proposition had a number of welcome side effects.

11 year old MR2, time of the scrapheap?

11 year old MR2, time of the scrapheap?

First of all, the UK economy received a welcome boost. For each £2,000 paid (£1,000 by the car industry and £1,000 by the Government), around £9,000 was paid by the average new car buyer. This meant an average of £1,350 was paid to the exchequer as tax leaving the Government with a £350 profit. That’s before you consider the tax contributions paid away from forecourts by suppliers, transport and employees working within across the industry and related sectors. In this country, it is claimed that 330,000 cars were sold as a result of the car scrappage scheme with as many as nine in every ten drivers taking advantage of the scheme claiming they would not have done so if the initiative had not been in place.

The second benefit was ecological. Consider the environmental impact of a third of a million ten year old cars and third of a million brand new cars. Development in technology coupled with congestion charges and petrol prices means new car buyers are increasingly looking for fuel-efficient, C02 friendly vehicles. Depending on who you listen to the C02 output averages fell from around 180g of C02 per kilometre to around 130g. That’s a cleaner air whichever way you look through it.

3 Years on, is it time for another swap?

So, three and half years on from the first car scrappage scheme, the question must be asked: isn’t it time for another round of old car/new cars swaps? Well, to be frank, the picture, and the truth, is far more complicated that a vibrant UK car industry and a cleaner environment.

what about the used car market?

While the new car market gleefully rubbed its hand at this investment the used car sector took a hit. Where there’s a chance to make a few quid, there’s always going to be someone prepared to look the other way and some of the 10 year old cars that were supposed to be scrapped didn’t always meet a dignified end. The glut of cars entering the used car market warped the market and reduced profitability for many independent used car dealers also reducing the amount of money they could pay in wages, tax and VAT.

And, with so much of the initiative hanging its hat on eco-credentials, consider the impact of millions of cars ending up in landfill. Indeed, many environmental groups asked why the £2,000 investment was not restricted to green cars? (Admittedly, from January 2011 drivers opting for a plug-in electric can access a £5,000 grant towards purchase with 11,000 charging points are being built). Because so many of the cars were imported from half-way around the world, the eco impact was, in some ways, counter-productive.

That importation negatively impacted British manufacturers too.

Part of the rationale for introducing the car scrappage scheme was to give UK PLC, particularly the country’s car manufacturers, a shot in the arm. Consider then, the top ten cars purchased by the drivers taking advantage of the scheme: Hyundai i10, Ford Fiesta, Kia Picanto, Vauxhall Corsa, Fiat 500, Toyota Yaris, Hyundai i20, Fiat Panda, VW Polo, Ford Ka* So the impact on the British Motor Manufacturers is at best limited (and often limited to parts supply). Indeed, critics of the car scrappage scheme suggest it has been the most welcome boon to the Korean car manufacturing industry, strengthening the hand of Britain’s global competitors!

A vast number of small, independent garages were hit. Consider 330,000 ten year old cars being taken off UK roads along with their servicing demand.

So why not keep the scheme running?

The picture becomes more complex with the addition of each stakeholder. Indeed, there are a number of reasons that drivers opt for cars older than ten years. They can be financial, in which case the £2,000 offer is still some way short of prompting an new car sale. The second reason might be a pure love of their car – a driver of a 1999 Golf GTI might be very happy with their ride, thank you very much.

So what are the solutions? There are growing calls, particularly amongst the car industry, for the government to offer incentives to drivers of vehicles around the three year mark. The confidence to do this will only come with the government targeting the bigger factors in British life: job security, a slackening of austerity measures and control of petrol prices to money back in the pockets of British consumers.

Conclusion

Whatever the outcome, the Government must make public quickly and definitively their plans for a second round of scrappage. Uncertainty as to whether it will return or not is damaging to the new and used car sectors alike, as well as extending the life span and usage of potentially unsafe cars ready for the scrapheap.

If the car scrappage scheme is re-introduced then surely a proviso on benefit has to be a purchase of British-made vehicles and or cars with minimal Co2 emission. In both returns to the domestic exchequer and domestic environment, what could be more beneficial than that?

*Figures courtesy of The Society of Motor Manufacturers and Traders.

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1 Comment

  1. Bad bad move. In theory it’ll work but practice is no good. Kills the second hand markets, kills off cars that can be bought cheaply by the not so well off and what happens to the classic car scene? Whose got the money to buy a brand new car..? Leave it alone for now and think again. Getting people working would be the answer but that’s another conversation……

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