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Used Car Market Analysis: The scrappage scheme

A scrappage incentive in last month’s Budget was a widely anticipated move that has been welcomed in some quarters.

It was campaigned for by a popular tabloid newspaper and two automotive magazine publishers (not ours, I hasten to add!), among others.

However, on closer inspection the programme would appear to be a confidence trick in which any measure of success would actually benefit the Treasury, particularly looking at cars costing £8,000 or more.

We all know the industry is in an unprecedented slump and needs something to help arrest the decline in sales.

The German ‘cash for clunkers’ scheme has resulted in impressive registration figures during the first few months of 2009.

Many brands reorganised production and market
allocation of small cars to keep up with demand in Germany, where manufacturer incentives have been added to the €2,500 handout on each car.

But the British scheme seems a little more complicated.
The Government is only funding £1,000 of the £2,000 discount on each car sold. The manufacturers will have to find the other £1,000.

It means for some manufacturers funding £1,000 on some small cars results in them making a loss.

Manufacturers were told they can’t be selective about the products it’s applied to: it’s all or nothing.

Let’s take for example the Honda Jazz 1.2S. On the road price is £9,990. Honda puts in £1,000 (which means it makes a loss on this particular sale), and the Government puts in its £1,000.

However, VAT on that model is £1180.70. VAT on delivery charges is £81.52. The vehicle is subject to the £55 first registration fee, and annual road tax is £120.

It means for the £1,000 subsidy it puts in, it takes out £1,455.22 – or a 45% return on its investment.

Something Arthur Daley might call a ‘nice little earner’. And he has the same initials as Alistair Darling . . .

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