Cash for Bangers – Can Vehicle Scrapping Schemes Rescue the Car Industry?

By Andy Bannister

04.28.2009

new-for-old-scrappage-pictureLast week the United Kingdom became the latest European country to announce a scheme to pay owners of older vehicles to scrap them in return for purchasing a brand new car.

Similar schemes have been a big success in Germany, France and Italy, seemingly turning round a dramatic slump in sales. Steep rises have been particularly evident in purchases of new, fuel-efficient small cars.

Faced with an ever-deepening recession and some dire economic indicators, the British Government has been under immense pressure to do something to help both the domestic industry and the important car retail sector. New car production in the UK plummeted over 51% last month compared to a year ago.

The British scheme, due to last until next March, could theoretically see 300,000 extra drivers behind the wheel of a brand new car, significantly boosting trade thanks to a £2000 ($2920) discount off the showroom price.

Dig below the surface a little, though, and the outlook for the industry and the majority of new car buyers doesn’t look nearly so rosy.

scrappage-ford-sierra-sapphireUnlike other European schemes, the British one is only half funded by the Government, with the other £1000 ($1460) per car being provided by the industry itself. Companies don’t have to sign up, though indications are already that almost all will.

Trouble is, in the current retail climate, most dealers are already offering thousands off the price of a new car. There are fears the Government scheme could put paid to many of these discounts, meaning in some cases buyers may not get as good a deal as they would have by buying in the normal way.

To qualify, motorists must have a car or light van over ten years old with a current MoT (a certificate of roadworthiness) and they must have owned it for at least a year.

The rules say any car traded in must be scrapped by the car dealer , which has infuriated some of the green lobby. Whilst older cars tend to be less safe and pollute more, some perfectly roadworthy low mileage vehicles with plenty of life left in them seem set to be junked early, wasting a lot of the energy that went into manufacturing the vehicle in the first place.

Classic car enthusiasts are also worried that some older vehicles which are on the verge of becoming collectible will simply be scrapped by their owners in favour of a quick cash handout.

Another unknown factor is the overall effect on secondhand car prices overall, and particularly older cars around the £500 bracket. Normally such vehicles in the twilight of their lives would have got a young driver on the road for the first time, but people may be reluctant to sell them cheaply when they now have a nominal value of £2000 at dealerships.

A further potential problem for the scheme is that most buyers taking advantage are expected to buy the smallest and lowest priced cars on the market, not least because of the sum they will need to find to buy that shiny new car.

In the UK these are types of cars are already in high demand, with shortages reported in some cases. In such conditions there is some evidence that the prices of cars at the cheapest end of the market have already begun to edge up in anticipation, despite the UK having effectively zero price inflation at the moment.

srcrappage-rover-400In other words, all car buyers, new or used, could lose out as a result of one scheme artificially distorting the market.

The traditional route of making big savings by buying a pre-registered demonstration car with nominal mileage won’t be open to buyers using the scrappage scheme either. In the current climate many manufacturers have been pre-registering cars themselves to support sales, so buyers with cash to spare have been making big savings going down this route.

Under European Union competition rules, the Government cannot force people taking up the scheme to buy home-grown products. The manufacturers who benefit most could be makes like Kia, Hyundai, Suzuki, Peugeot and Fiat who offer cars in the lowest price bracket.

None of these makes are built in the UK, so the struggling British manufacturing sector – exemplified by Jaguar Land Rover – is likely to miss out on the promised sales bonanza.

Only Nissan, with its ageing British-built Micra, has a domestic offering in the lower priced supermini class. Other rather pricier cars of UK origin which could potentially benefit include some models of the Vauxhall Astra, Honda Civic, Toyota Auris and Avensis and the Mini range.

Given the eerie emptiness of many new car showrooms in recent months, anything that gets people buying again has to be worth a try – at least that’s the UK Government’s rather desperate argument.

It will be interesting to see if a planned American scheme avoids the pitfalls of its British counterpart.

COPYRIGHT Autosavant – All Rights Reserved

Author: Andy Bannister

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3 Comments

  1. I love that the English word for ‘clunker’ is ‘banger.’ My guess is that either noise is a pretty common occurrence from under the hood of a ready-to-be-scrapped car.

  2. i prefer the term we had in alaska for the old cars that had rusty fenders after only 5 years of driving on salted roads. “juneau junkers”

  3. T seems like what this does more than anything else is make junk cars into somethin with a lot of value.

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