Does the car scrappage scheme offer a good deal?
In the April Budget, the government brought in a car scrappage scheme. Buyers who trade in a car more than 10 years old will get £2,000 off a new car purchase.
The scheme has already started to have a positive impact on the car industry, with sales of new cars falling at their slowest rate for almost a year, according to the Society of Motor Manufacturers and Traders. More than 60,000 orders for cars under the UK's scrappage subsidy scheme have been placed in the first two months of the scheme.
But the initiative has still attracted criticism. There are concerns that it might not represent a good deal for motorists, with claims that car depreciation could leave buyers worse off even taking the discount into account. At the same time, some critics have suggested that the scheme is creating a false market.
So, does the car scrappage scheme represent a good deal for consumers and the flagging car industry?
YES, says Kevin Gaskell, chairman of motoring.co.uk:
Having watched the motoring industry brought to its knees over recent months, we believe the scrappage scheme is exactly the shot in the arm the industry needs to encourage new car sales.
Germany launched a similar scheme earlier this year, and since February, Hyundai and Volkswagen have both recorded the biggest-ever monthly order intake in new car sales. And while Germany’s success doesn’t guarantee the scheme’s victory in the UK, the outlook certainly looks promising.
However, continuity will be key to any sustained success, and we would urge the government to extend the scheme into the long term. While a March 2010 deadline will certainly accelerate customer sales up until then, unless the scheme is extended there’s a risk of the further collapse of an industry that is critical to the stability of the UK economy.
We have already seen some motoring suppliers cease production due to the delay in the introduction of the scrappage scheme. As production increases in line with accelerated new car sales, turning off the tap in March next year could prove crippling for manufacturers.
It’s encouraging that UK consumers have reacted with such enthusiasm to the scheme. Since the introduction of motoring.co.uk’s Scrappage Eligibility Checker on 22 April, we’ve received an overwhelming number of queries, with 93,468 cars checked for eligibility, of which 76% were eligible.
Moreover, the number of people searching for new cars trebled during April, compared with March.
Consumers do need to act quickly, though, in order to benefit from the scheme – especially as there are only 300,000 grants available.
No says: Mark Monteiro, an insurance expert at uSwitch.com:
The government introduced the car scrappage scheme to give the ailing motor industry a much-needed boost. However, while it’s a bonus for consumers who have always hankered after a brand-new car, for most motorists this gift horse definitely needs to be looked in the mouth.
Vehicle depreciation is the biggest issue for consumers. This could wipe out the £2,000 incentive within as little as 88 days of buying a new car. Average depreciation on a new car is £8,321 in the first year, or £693 a month.
Even taking the £2,000 ‘cash for bangers’ bonus into account, depreciation still adds up to £6,321 or £527 a month. With around 1.5 million motorists tempted to cash in on the scheme, consumers could lose up to £9.5 billion in depreciation in the first year alone.
The UK scheme is based on one that is already up and running in Germany. However, in Germany, consumers are getting a far better deal.
Firstly, the driver can get up to €2,500 (£2,183) for a new car. Secondly, the German government has wisely offered this discount on one-year-old cars. This means motorists can avoid much of the impact of depreciation by buying a nearly-new vehicle.
Motorists also need to consider the cost of insuring a new vehicle, which can be significantly higher than insuring an older model. Changing an existing insurance policy is also likely to attract either a ‘mid-term adjustment’ or a cancellation fee.
The scheme is well-intentioned but not well thought through, and our advice to consumers is to look into the implications carefully before deciding to take part.