Car Scrappage Scheme Update

As most of you will probably by now be aware, today’s budget has included the launch of a vehicle scrappage scheme. However, having studied the budget report itself, Buy A New Car Online have made the following observations:

A £2,000 scrappage allowance is to be introduced, but this is actually a 50/50 mix of UK Government and participating manufacturer contributions. The scheme will see the Government offer a £1,000 incentive to be matched by participating vehicle manufacturers when scrapping a taxed, insured and MoT’d car or van over 10 years old which they have owned for at least one year. This will inevitably see new car dealers putting prices back up to cover the £1000 incentive required in order to participate. Prices are currently at an all time low thanks to the credit crunch, but, by forcing the dealers to contribute to the scheme means the net benefits will be immediately wiped out. It is also bad news for online companies who do not make anything like £1000 per car and would in fact force original prices up and savings off the retail prices down.

Initial reports also suggest that the scheme will not apply to pre registered vehicles. As a supplier of mostly pre registered cars, we are unlikely to be able to offer the scrappage scheme as an incentive in the first place, however, the majority of our discounts are greater than £2000 which means we will still be able to offer a significantly better deal than the main dealers. Let’s take a look at the below example:

Ford Fiesta 1.6 Titanium 5dr (link to)

Our Price = £11406
Dealer price = £14195
Our deal = £2789 better than the Ford RRP
We value your 10 year old car at £500, price to pay would be £11406 - £500 = £10906
Dealer values your car at £2000 thanks to the scrappage scheme, so their price to pay would be £14195 - £2000 = £12195
Our deal quite clearly is still £1289 cheaper

Other points to note

• The scheme will run from April 2009 - March 2010
• The scheme will be for cars over 10 years old that hold a valid MOT certificate, tax and insurance
• The scheme will apply to new cars and vans as well as used cars and vans (up to 1 year old)
• The scheme will be restricted to certain cars dependent on emissions

Industry Comments

“The government has taken the opportunity to boost the new car market, while simultaneously helping consumers buy a new car,” said Paul Williams, chairman of the Retail Motor Industry Federation.

RAC Foundation director Professor Stephen Glaister said: “If the scheme leads to a reduction in the average age of the national car fleet then this has to be good for road safety as more modern cars will have a wider range of safety features built in.”

The Society of Motor Manufacturers and Traders (SMMT) has said the scheme would also help replace heavily polluting cars with more efficient and less polluting new ones, though the scheme is open for buyers of any new car, not merely small, efficient ones.

But the car rental and leasing body, BVRLA, whose members supply 2.5 million company vehicles each year, said it was concerned about the impact on the second-hand market.

“Unfortunately, our ministers have chosen to follow the German model, which has been widely criticised for decimating the country’s used car industry,” said BVRLA chief executive John Lewis, who predicted that companies would hold on to their cars longer rather than selling them cheap.

The BVRLA is concerned this could result in a fall in demand for new cars from companies that would cancel out the rise in demand from consumers.

Mr Lewis was also concerned that the initiative would do little to safeguard jobs in the UK motor manufacturing industry since most cars bought here are made abroad.

Spare parts suppliers and garages could also suffer from a fall in demand resulting from the mass-removal of old cars from the market.

“Currently the vast majority of cars are still on the road at 10 years old. Indeed at 14 years old, half are still on the road,” said Professor Glaister of the RAC Foundation.

“The scrappage scheme announced today risks consigning a lot of perfectly good, and relatively clean, vehicles to the dustbin.”

Tags: Car Scrappage Scheme

This entry was posted on 23 April 2009 at 08:44 and is filed under Industry News. You can leave a response here.

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