Car scrappage scheme boosts motor trade
More than 150,000 cars have been ordered through the government’s scrappage scheme since its launch in May, according to official figures released today.
This accounts for more than half of the £300 million set aside for the scheme.
Figures for new car sales reached 157,149 in July, an increase of 2.4% on July 2008. This represents the first growth in 15 months in a market which remains down almost 550,000 units over the past 12 months.
Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, says: "The impact of the scrappage scheme is clear and we are encouraged by the positive impact it has had, increasing new car registrations for the first time since April 2008.
"Industry still faces a long road to recovery and we urge government to take action to sustain economic recovery through easing access to finance and credit and delivering the loan guarantees set out by the Automotive Assistance Programme."
Announced in the 2009 Budget, the scrappage scheme is intended to boost consumer confidence and kick-start demand for new cars, by offering motorists a £2,000 discount on a new car, if they scrap a car that is at least 10-years-old.
The £2,000 grant is made up of £1,000 from the government, matched by funding from vehicle manufacturers. The scheme will operate until March 2010 or until the government funding has been exhausted - which looks like it could be soon.
Janet Connor, managing director of specialist over-50s insurer, RIAS, comments: "Our research shows that the UK car scrappage scheme has certainly captured the imagination of motorists across the country, and that consumer demand for the scheme looks as though it will exceed supply.
"For the scrappage scheme to be at the half way point already, less than three months since the scheme was launched, underlines that in the current climate the £2,000 scrappage incentive is an attractive option for people in the market to buy a new vehicle, and who are concerned about their motoring costs."
It is still possible to benefit from the scheme, but with scrappage registrations currently running at around 13,500 a week, those interested must act fast to avoid missing out.
Lobby groups are calling on the government to increase funding to extend the scheme, which based on current take-up levels, could run out in October 2009. Higher new car prices and the end of the 2.5% VAT cut at the end of the year could stifle further demand before the economy has even started to recover.
GlassGuide.co.uk, which publishes used car price guides and other car market data, also suggests that the scheme should be altered to cover slightly younger cars, and vehicles standing idle on the driveways without MOT certificates.
Adrian Rushmore, managing editor of the website, comments: "The government should urgently re-evaluate the planned discontinuation of the scrappage scheme in order to avoid a sudden, pronounced and damaging fall in business.
"Consumer confidence will continue to be at a low ebb at least until next summer, and without the contribution of scrappage sales, the new car market will rapidly fall to the levels seen during the last recession, when around 1.6 million cars were sold each year."
But while the car market might profit from the scrappage scheme, there are concerns that consumers could actually lose out from it, with the £2,000 incentive quickly wiped out by vehicle depreciation.
According to Mark Monteiro, an insurance expert at uSwitch.com, average depreciation on a new car is £8,321 in the first year, or £693 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, which offers consumers a much better deal. "Firstly, the driver can get up to €2,500 (£2,183) for a new car," explains Monteiro. "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."
To find out more and register for the scrappage scheme, visit your local car dealership or search for deals at carscrappage.co.uk. There is also a checklist available at direct.gov.uk to find out if your existing vehicle qualifies to be traded in for the scheme.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.