End of the Road for the Car Scrappage Scheme

Today marks the end of the UK government’s car scrappage scheme. The scheme offered drivers of cars at least 10 years old £2,000 off the price of a new vehicle with half of the money is paid by the government and half by the carmaker in question. Over the course of the scheme is estimated that the scrappage initiative has been responsible for about a fifth of all new UK car registrations. And there seems little doubt that the consumer subsidy has provided a shot in the arm for a car industry affected badly by the global financial crisis and subsequent recession. Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders is quoted as saying that it had provided a “much-needed stimulus for the UK motor industry”.

To put things into perspective, the car scrappage scheme has account for around 0.1% of UK GDP. Motor retail industry figures suggest that perhaps one fifth of new cars have been bought under the terms of scheme and many have been older car owners encouraged to downsize their vehicle and pay an unexpected visit to the show-rooms in search of the discount. There are some environmental spill-overs too, cars bought through scrappage had average CO2 emissions of 132.7g/km – lower than the existing average and nearly 30 per cent lower than the average C02 emissions of all scrapped cars.

Dealers, car plants, scrappage yards, car insurance and finance companies have all benefited from the scheme as have overseas car makers – a large percentage of the new cars bought have been imported. The main foreign beneficiaries have been Hyundai, Kia, Ford, Fiat, Toyota and Skoda.

But used car dealers are not so happy – the scrappage scheme caused a cross-price effect driving buyers away from cars of 1-3 years old in favour of new cars that were almost as cheap as their used car options. In 2009, 6.8m used cars were sold, down 5.7% on 2008 and the least since 6.71m were sold in 2000.

What next for the UK car industry? The continued weakness of sterling provides an opportunity for cars made in the UK to be exported to Western Europe if there is a sufficiently robust economic recovery in key EU markets. The general view is that new car sales will sag in the months after the scrappage scheme disappears, but this depends on the pricing tactics of car retailers. They may well decide to target businesses that purchase fleets of vehicles, many of whom postponed renewing their car stock in 2008-09 during the recession. And consumers who have missed out on the subsidy are still likely to find some good bargains – indeed discounts in the showrooms may be little different from when scrappage was in place. I hope so ... I intend to buy a new car immediately after Easter!

Scrappage scheme comes to an end (BBC news)

I have attached a powerpoint with some charts on the state of play in the UK car industry / market

Chart presentation
Charts_on_the_UK_car_industry.pptx