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Times front page headline
on Saturday 11th April 2009
The Times reports today that "the Treasury is blocking
plans to give motorists £2,000 towards the cost of
a new car". It adds the lordly Mandelson, the UK government's
business minister, wants "his scrappage scheme made
the centrepiece of the Budget on Wednesday 22nd April"
. . . however dithering Darling (the Chancellor of the Exchequer)
and some Treasury officials "have expressed some deep
anxieties about the cost and terms of the programme which
would encourage drivers to scrap old vehicles for new, cleaner
cars. It would also give the motor industry a sales boost."
The Society of Motor Manufacturers and Traders (SMMT) "has
blamed part of last month's 30% fall in new car sales on
uncertainty about a scrappage scheme." Motorists are
thought to have held off buying until they know whether
the scheme is going to happen in the UK. Times
article
So what
are some of the issues here?
o Do scrappage schemes work?
Well new car sales in Germany are reported to have jumped
by 40% and in France by 8% following the introduction
of scrappage schemes. Japan is the latest country to introduce
a scrappage scheme covering both cars and white consumer goods.
o What is the economic effect of these schemes?
Essentially the public sector financial support is applied
to the output end of the industrial sector rather than support
or subsidy for the input end. The thinking is that with the
existing large stocks of new cars the priority is to shift
the those cars through to sales. There is little point creating
more cars for stock if the sales levels are not raised.
o Are there any particular factors in the UK market?
Last year some 86% of cars bought by buyers in the UK were
imported, so the main beneficiaries of a UK scrappage scheme
would be overseas vehicle manufacturers. Restricting the scrappage
payment to buyers of UK manufactured cars would fall foul
of the general belief that protectionist measures are undesirable
as they would damage global recovery. But the inescapable
fact is a UK scheme would be costly in terms of the net effect
on UK manufacturers although it would have a greater effect
on the car distributors. More
o How
would a scrappage scheme work?
Although in essence the scheme seems very simple, the
issues over how the scheme would work are more complex, not
to mention consequential impacts on |
Look
back at our previous news items on this topic
Scrappage scheme in the UK under consideration?
A report in the Times on 12th March 2009 indicates
there is a growing frustration among industry chiefs
and unions over what they see as the lack of urgency
by the Government in tackling the problems of the
UK car industry. Industry figures had hoped to hear
news of other initiatives, such as access to consumer
credit, which they view as vital.
(12.3.09)
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".
(27.1.09) More
Comments on the cash for cars news items
Comments from the FBHVC in its news release dated
21st November 2008 together with an FBHVC Position
Paper dated 3rd December 2008. More
Cash
for old cars scheme report
In a lead article in the January 2009 issue of Classic
Car Mart, Editor Keith Moody says in his leader "This
month, Classic Car Mart launches a campaign to save
our modern classics. It follows news that the Government
is looking at ways to offer drivers incentives to
scrap older cars." (1.12.08)
More |
various
segments of the car market: for example new car retailers
may not pass on the full scrappage benefit as an additional
discount to thier already heavily discounted prices for
new cars currently on offer in their showrooms, the market
for relatively new secondhand cars will probably collapse
and the market for older cars in the "scrappage category"
will clearly be affected if large numbers of vehicles are
removed by scappage from the market. But the question we
raised in our news item on 27th January 2009 remains - just
how will the scheme work as most people scrapping an old
car tend to buy a good secondhand car as a replacement.
So unless the scrappage voucher or certificate is transferable
how will a potential new car buyer replacing say a three
year old car be able to get hold of the payment from the
scrappage scheme and use it as an incentive to buy a new
car? See our earlier item on these issues. More
o What are the concerns for classic car enthusiasts?
The main concern is that the scrappage payment will be an
incentive for heartless operators to gather up Condition
3 cars in poor condition and cash them in for the payment.
If they are able to strip those cars for spares but still
get a certificate the vehicle has been technically scrapped,
then they will have the scrappage payment too. The residual
value for a Condition 3 classic car could become very attractive
- possibly causing a small rise in Condition 3 values but
the sellers may not be so well informed as to the "broken
for spares" value and simply look for the Government's
scrappage payment. Presumably if the operator accepting
the car for processing as an "old vehicle under the
Government scheme" does not offer a "broken for
spares" payment, the owner of the old vehicle will
have to pay to have the vehicle taken away. Some local authorities
offer a free old vehicle collection and disposal service.
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