Car manufacturers were right in the firing line when the global financial crisis struck. That was until they persuaded the Government to step in. We look at the impact of the scheme, which ends next week
By David Williams
Published: 11:15AM GMT 27 Mar 2010
Another one bites the dust: Scrapped car being crushed Photo: STEVE BELL / REX FEATURES
Britain’s big experiment with state-subsidised car buying officially ends next week, 10 months, 12 days and £400 million worth of taxpayers’ money since it began
last May.
Scrappage has sent consumers flooding back to struggling showrooms, triggered the sale of 396,000 new cars and pulled the motor industry back from the brink of crisis.
But how successful has the scheme truly been and what will its long-lasting effects be? To fully appreciate the impact scrappage has had – and the Herculean task now facing carmakers trying to survive following its demise – we need to go back to November 2008.
Nothing looked certain when motor industry chiefs went cap in hand to ministers with plans for a government-funded “cash for scrap” rescue plan, against a backdrop of plunging sales.
“Officials were guffawing at first,” admitted Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders (SMMT). “You could say the initial stages were an uphill battle.”
Sales at the volume end of the market were in freefall and – as bankers at some of the City’s biggest institutions were ordered to clear their desks – luxury carmakers were being dragged down too.
New car registrations in November 2008 plummeted nearly 37 per cent on November 2007 figures. Some luxury marques slumped more than 60 per cent.
By December, car sales had suffered their worst year-on-year fall since 1980. “We were looking at the prospect of tens of thousands out of work,” Everitt said.
Those Government officials aren’t guffawing now. Scrappage has been hailed a success by motorists, the industry and the Government. Thousands who would have lost their jobs in manufacturing, distribution and retail are still employed, still paying taxes, not drawing benefits.
Last month, British car sales were up 26.4 per cent compared with February last year, resulting in eight consecutive months of growth – thanks to scrappage. Car production was up 62.7 per cent in February, the fourth successive monthly rise.
Latest figures show that scrappage accounted for one fifth (20.4 per cent) of all new car registrations since the scheme started on May 19 2009, offering £2,000 off a new car – split 50/50 between Government and manufacturer – if the owner’s old one was scrapped.
The injection of new cars onto our roads – all bristling with the latest engine and safety technology – will improve our pollution and our casualty statistics. Cars bought through scrappage had average CO2 emissions of 132.7g/km.
That’s nearly 10 per cent lower than the average for all new cars registered over the same period – and a hefty 27 per cent lower than the average CO2 of all scrapped cars.
CO2 isn’t the only evil being scrubbed out. “There are other tailpipe emissions to take into account,” Everitt says. “We’re going to see the benefits of these extra new cars affect road accident statistics and the health of us all for years.”
And scrappage has been at least revenue-neutral for the Government, which cashed in on the flow of VAT paid on new cars.
In the fourth quarter of 2009, scrappage accounted for 0.1 per cent of GDP.
Consumers have benefited enormously, too. The scheme encouraged motorists who would never normally buy “new” to visit showrooms, chequebook in hand. They drove off in models for the same money that previously they would have had to spend on a good used example.
In the manufacturer battle, Hyundai has emerged the outright winner, Telegraph Motoring figures show, with 38,870 scrappage sales (70 per cent of its total sales) up to the end of February.
Entry-level Hyundai i10 Classic before scrappage? £7,200. During? £4,995. Or £85 per month on Personal Contract Purchase (PCP), not much more than you can spend on a mobile phone contract.
Hyundai sales rose a massive 102 per cent from February 2008 to February 2009. Kia, too, saw the scheme account for 70 per cent of its registrations, with 33,764 scrappage sales. Other winners were Ford, Fiat, Toyota and Skoda.
“But,” warns Dr Peter Wells, of the Centre for Automotive Industry Research, Cardiff, “incentives are a dangerous drug. The problem facing industry now is how to wean buyers off again, when we don’t know how strong economic recovery – or demand for new cars – will be.”
Demand will now switch from discounted new cars to quality £4,000-£6,000 used models, according to carsite.co.uk.
Reflecting this, trade values for popular models have recently risen by nearly £200. In February, a 2007 Vauxhall Corsa rose £180, a 2007 Kia Picanto £130, a 2007 Hyundai Getz £100.
The entry-level price of models such as the Picanto and Hyundai i10 during scrappage? About £5,000. Now, this will rise to nearly £6,500. Expect a “sudden increase in demand for better-equipped, better-value second-hand models,” Carsite states.
The SMMT says the outlook for 2010 is subdued, with an expected decline in sales of almost 10 per cent to 1.82 million. And private buyers – who led the sales growth last month – could be driven from showrooms by savage VED rises planned for April (see Mr Money, page 13).
“Scrappage gave the industry a stay of execution,” Wells says. “Now that it’s over, senior management, perhaps for the first time, will seriously be earning their money.
“They must strengthen their brands while restoring profit margins – at the same time as digging themselves out of the incentive trap. There is a very rocky road ahead indeed.”
