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BUDGET 2009: Scrappage scheme confirmed

Alistair Darling has confirmed in his Budget that there will be a scrappage scheme for new cars and vans introduced to the UK next month.

The scheme will see the Government offer a £1,000 incentive (up to a total of £300 million across the scheme) to be matched by participating vehicle manufacturers when scrapping a taxed, insured and MoT’d car or van up to 3.5 tonnes over 10 years old which they have owned for at least one year. Cars qualify if they are registered from August 31, 1999.

The registered keeper must have a UK address to take part in the scheme.

The dealers will do all the paperwork for motorists participating in the scheme and arrange for the old vehicle to be scrapped.

The dealer will check that the vehicle being traded in and the new one being bought qualify under the scheme. 

The number of cars in the UK vehicle parc over 10 years old to the end of 2008 is 9,528,582 and the number of light commercial vehicles is 993,731, according to figures from theSociety of Motor Manufacturers and Traders (SMMT).

It is also thought the scrappage scheme will have to apply to all vehicles in a participating manufacturer's range.

Mandelson

Business Secretary Lord Mandelson said: “This is targeted action with a capped budget and for a limited time, designed to boost the whole motor trade.

"This will ensure that the benefits of a scrappage scheme are balanced with the needs of other sectors of the car industry such as the second hand market, maintenance and repair businesses, and other industries that produce consumer durables or on the taxpayer.

“The car sector is under huge pressure at the moment and the government is determined it remains a very important part of our manufacturing base.

"It invests heavily in research and development, supports highly skilled workers and a wider supply chain. These are vital to our future manufacturing and retail success.”

The scheme will be run by automotive manufacturers who wish to participate. It is expected to be operational from mid-May to allow industry time to prepare.

There will be proper verification procedures to ensure the rules are followed, including audits by DVLA to avoid abuse that has been encountered in other countries.

Business Minister Ian Pearson said: “People will not only save hard-earned cash on buying a new car or a van for their business but they will know they are helping save jobs too.

“If you’ve got a vehicle that’s ten years old or more, you just need to talk to a participating dealer who will do the rest. You will get at least £2,000 towards a new one.”

Key details at a glance:

  • Scrappage scheme for cars over 10 years old which starts next month. £2,000 available to subsidise the purchase of a new car until March 2010.
  • 2p increase in fuel duty in September and then by 1p above inflation each April.
  • Job Centre Plus will be given £1.7 billion in support to cut down the time people are out of work.
  • January 2010 everyone under 25 will be offered a guaranteed job or training.
  • £260 million funding for training and subsidies for young people in growth industries.
  • Economy forecast to shrink 3.5% in 2009
  • Growth expected to pick up in 2010, expanding by 1.25%.
  • Economy to grow by 3.5% annually from 2011.
  • Consumer price inflation to fall to 1% by end of year.
  • A new top tax rate of 50% for those earning more than £150,000 from next April.
  • The Government will have to borrow £175bn to save public finances. 
  • Loss-making companies will be able to reclaim more taxes on profits made in the last three years.
  • More help for firms with cash-flow problems
  • Insurance top up cover for companies announced
     

RMIF

Paul Williams, chairman of the Retail Motor Industry Federation (RMIF), said: "The introduction of a vehicle scrappage scheme as announced in the Budget will boost the new car market, encourage consumers to get back into car showrooms, and reduce the likelihood of employee downsizing in this sector.

"The nation’s car dealer network, which will be in the front line for the duration of the scheme, has the expertise that will enable the scheme to be a success, and will assist Government in the implementation of the scheme."

SMMT

Paul Everitt, SMMT chief executive, said: “This is good news for consumers and will get people back into showrooms, kick-starting demand in the market.

"The scheme recognises the economic value of the motor industry and we are determined to make it a success. There is clearly a great deal to do and we look forward to discussing the finer detail of the proposal with government in the coming days.”

Kia

Paul Philpott, managing director of Kia Motors (UK), said: “Kia welcomes the Government's positive response to the difficult times facing the new car market but I am personally disappointed that our Chancellor is only going half-way compared to other European governments.

"I am pleased for consumers and for our dealers that the Chancellor has taken positive action and that he is introducing this scheme rapidly. The devil will be in the detail and I am sure the SMMT will be looking for early meetings with the Treasury to discuss this.

"The reality is that the Government is shifting a large part of the cost of this programme onto the shoulders of the manufacturers, when it is the manufacturers who are working hard night and day to deal with the effects of the economic turmoil and recession around the world.

“Until full details of the programme have been revealed it will be impossible to say exactly what the scheme will mean for motorists scrapping a 10 year old car to buy a brand new Kia - but a 1.0 Picanto could be on the road for £4,195.”

Manheim

John Given, group sales director for Manheim, said: "We welcome any initiative that stimulates the new car market. The scrappage allowance could reduce our lower value part exchange volumes coming into Manheim Auctions but we do not believe this impact will be significant.

"However, any increased retail activity as result of this allowance will positively affect the marketing support provided to dealers through Manheim Retail Services.”

CAP

CAP believes the bulk of new car demand stimulation will be for the cheapest small cars.

It says: "Consumers currently running cars of 10 or more years old are likely to require significant finance over and above the £2,000 voucher.

"By definition they are likely to be sub-prime finance customers. This area of finance provision is subject to the greatest caution among providers. A proportion of those qualifying for the scheme may therefore still be unable to acquire the finance to purchase.

"In the case of light commercial vehicles CAP is sceptical that many tradespeople with 10+ year old vans will switch straight into a new vehicle, due to the same financial factors.

"Any nearly new car or van of the type for which most new car demand will be stimulated will see its value reduce.
Residual value reductions will therefore be limited to later used examples of the cheapest small new cars and vans. "
 

PricewaterhouseCoopers response

Matthew Alabaster, auto expert at PricewaterhouseCoopers, said: "The scheme would inject some much-needed demand into an industry hard hit by falling consumer confidence. The car dealership sector in particular would directly benefit.

"However, the cost-benefit of such a scheme is far from clear for the industry as a whole. It proved successful in Germany however, the average age of the German car is 8 years, noticeably higher than the 6.8 years seen in the UK. Consumer debt is significantly higher in the UK, restricting the ability of many people to leap from an old to a new car, even with an incentive.

"The scrappage scheme will not specifically target cars made in the UK. Only around 15% of cars bought in the UK are made here. The beneficiaries would be producers of small, high volume cars, most of which are imported from the rest of Europe. It would clearly have minimal impact on UK premium manufacturers such as Jaguar and Land Rover.

"Scrappage would provide a short term fillip for a depressed market, but it is only part of the picture; it is misleading to assume that the scrappage programme is a silver bullet for the industry’s problems as a whole. We await the detail to understand fully how it would work and its benefits."

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