Prince
of Darkness eyes scrappage scheme
The report in today's Times of the announcement made yesterday
by the lordly Mandelson, the Secretary for Business, says
"all the aid announced for the car industry yesterday
is supposedly linked to "lower carbon initiatives",
but the car industry expects the green requirement to be interpreted
very loosely". But was it simply "green spin"
from his Lordship - were there any direct measures to encourage
sales of greener cars in Britain? The Times suggests the answer
is No, but then adds he "is understood to be looking
at the French and German [elderly vehicle] scrappage schemes,
under which drivers who trade in old gas guzzlers get a state
grant of up to €2,500 (£2,329) towards a new car."
It adds that an official in the Business Department said:
"We are not yet convinced that a scrappage scheme is
the right way forward."
The topic of scrappage came up on the V8 website at the beginning
of December 2008 when news that the UK Government was looking
at ways to offer drivers incentives to scrap older cars had
leaked out. The proposals for a "cash for old cars"
initiative was said to be targeted at 17 to 18 year old cars,
the age at which cars in the UK probably tend finally to drop
out of everyday use and are either scrapped or, in a relatively
few cases, preserved and restored as a hobby car. So for most
old cars the proposals would probably be doing no more than
slightly accelerating the natural wastage on economic grounds
by introducing another economic factor.
Cash
for cars news item
Poor Condition 3 V8s at a growing risk of being broken
for spares
In yet another news item on the V8 website last April, we
highlighted the sad economic realities for Factory MGBGTV8s
in need of major restoration - they are at risk of being broken
for spares simply because the residual value for a major restoration
is very often lower than the aggregate value broken for spares.
When a Factory MGBGTV8 reaches a stage where a serious restoration
is necessary, the high cost of restoration and the current
modest market prices for Condition 1 and 2 cars means the
residual value of the car for restoration is quite low. The
aggregate value of the key components when a car is broken
for spares - gearbox, back axle, engine and other parts -
is possibly double or more than the residual value for restoration.
Sadly we are seeing a small but nonetheless flow of Factory
MGBGTV8s being broken for spares even where a restoration
is feasible. The increasing interest amongst V8 enthusiasts
for V8 Roadster conversions is contributing to a demand for
those spares. So the trend seems likely to continue unless
the prices of Condition 1 and 2 MGBGTV8s rise substantially,
but in the present economic conditions in the UK that seems
unlikely for a year or so at the earliest.
Earlier
cash for cars news
So
how might a UK scrappage scheme work?
So what side effects might a "cash for cars" scheme
have for a classic car which has reached a stage where it
needs serious or even moderate restoration? Well the outline
of the proposals seems to indicate the cash payment for an
elderly car that is "scrapped" would be used to
buy a new car - but how |
would that
work? Presumably the owner of an old car which is formally
scrapped would receive the grant - possibly a voucher that
could only be redeemed as part of the purchase consideration
for a new car. A "new car" is likely to mean a
car recently manufactured and unregistered. But the reality
is only a small proportion of owners disposing of an elderly
car then go out and buy a brand new car, more often they
trade up to a good secondhand car. The seller of that good
secondhand car might then buy a brand new car. So there
is a chain of buyers and sellers between a scrapped car
and the purchase of a new car. Faced with this, it is very
likely imaginative car traders and salesmen will soon find
ways of acting as "facilitators" to make that
"merry go round" work. Alternatively if the grant
or voucher were to be assignable, then the owner scrapping
their old car might be able to sell the voucher at a discount
to a
purchaser of a brand new car thereby reducing their purchase
price. That would effectively transfer the financial incentive
to a prospective new car buyer and help encourage them to
go ahead and buy a new car. As the underlying aim of the
measures announced yesterday is to put an economic stimulus
into new car sales and therefore help vehicle manufacturers
and their workers, surely that transfer would be effective.
But another feature of a cash for cars scrappage scheme
needs clarification - who gets the scrap? How will "scrapped"
be defined by any scheme? If a car has to be taken off the
road permanently to qualify - and possibly a new scrapped
or written off category might be introduced and attached
to the vehicle data record - then the owner could sell a
"cash for cars vehicle" designated as "scrapped
and off the road" to be broken for spares so the aggregate
value of the spares could be realised. However I fear this
is another economic effect which could hasten the end of
a tired and rusty classic car because then the residual
value of the car would not only be the spares value but
also the cash for cars grant or voucher value - or a major
part of it. That combination, assuming say a net £1,500
voucher value, could easily be £3,500 and more. That
figure would compete seriously with a buyer looking for
a good restoration project, so the likelihood is the economic
value of tired MGBGTV8s going for formal scrappage to then
be broken for spares will be sufficiently attractive that
sadly we would see an increase in V8s being broken for spares,
particularly in a recession or worse.
What are fellow members' views? (27.1.09) |