02.06.2009

Car scrappage scheme

More than 35,000 new cars have been ordered through the UK’s scrappage scheme since it was announced in April, government figures show.

The introduction of a vehicle scrappage scheme was announced in the Budget to boost the new car market, encourage consumers to get back into car showrooms, and reduce the likelihood of employee downsizing in the automotive sector.

A number of other EU member states have boosted vehicle sales through scrappage schemes. A similar scheme has seen great success in Germany, where new car sales saw a 40 per cent monthly rise and attracted over half a million buyers.

The £2,000 scrappage grant is made up of £1,000 from the Government with matched funding from the industry. The scheme will operate from mid-May until March 2010 or until the Government funding has been used.

It will apply to commercial vans (up to 3.5 tonnes) as well as cars that are 10 years old or older. The scheme is a voluntary scheme so not all manufacturers or dealers may participate.

It is anticipated that up to 1.5 million consumers are most likely to take advantage of the scrappage scheme and, although research carried out by Experian found 7.1 million privately-owned used vehicles are eligible to take part in the scheme, not all the owners of these vehicles would be in a position to take advantage. Approximately 15% of these eligible vehicles are likely to be worth more than £2000.

Furthermore, a number of people will still look for an older model, despite £2,000 towards the total price of a new car.

Each year, around 26 per cent of all the used cars sold are over 10 years old. This equates to approximately two million cars.

Experian Business Information and Automotive division managing director Kirk Fletcher believes that the scheme “should help stimulate demand across the car market, as well as assist the environment by removing older, potentially more polluting vehicles from UK roads.”

However, Glass’s Guide believe the scheme is unlikely to have a “significant” impact on used cars’ residual values, countering speculation that the prices being asked for nearly-new cars would appear prohibitively high next to the price of new cars discounted under the scrappage scheme, and most of the vehicle manufacturers’ £1,000 contribution is already on offer to potential car buyers in the form of sales discounts and incentives.

The manufacturers’ scrappage bonus will largely replace these incentives, not supplement them, and today’s used car values already take full account of current low transaction prices on new cars.

Several manufacturers have confirmed that their dealers will be taking part in the Government scrappage scheme, including: Audi, BMW, Citroen, Ford, Hyundai, Mitsubishi, Mercedes Benz, Nissan, Peugeot, Renault, Toyota, Vauxhall and VW amongst others. Indeed, Nissan has put its own twist on the scrappage scheme by extending it to include vehicles aged between 8 and 10 years old and Mitsubishi Motors UK is extending its participation by including vehicles of five years old.