The Government’s Scrappage Incentive Scheme is to be extended by one month, it was announced last night.
Business secretary Lord Mandelson said the ‘cash for bangers’ scheme, which sees consumers offered a £2,000 grant to trade in vehicles more than 10 years old for new models, was announced in the April budget.
Scrappage will now end on March 31 or when the funding, totalling £400 million, runs out.
The move was said to have come after "intensive lobbying by the National Franchised Dealers Association.
No new money will be put into the scheme, which proved a windfall for the Government thanks to the VAT take being greater than the amount it was putting in.
The Government said the extension would give manufacturers and dealers “more time to prepare for and operate the exit phase of the scheme”.
It means scrappage will be a sales tool for dealers during the plate change.
Scrappage has been credited with reversing a 15-month decline in car sales and has brought back numerous car retailers from the brink of failure.
The sales slump was was reversed in July and in October a 31.6% rise in sales compared to 2008 was the biggest increase in sales in 10 years.
Figures released today by the Society of Motor Manufacturers Traders show that year 330,722 cars had been bought under the scheme out of a maximum 400,000, in which the Government and the car makers each contributed £1,000 towards the subsidy.
The January scrappage total is 26,332 units. In December it was 33,387.
Remaining scrappage funding is to be allocated to manufacturers based on their retail market share - not share of scrappage sales, the Department for Business, Innovation and Skills told AM today.
In all 38 manufacturers have signed up to the programme including Bentley and Rolls Royce, as well as mass market producers.
Lord Mandelson said: “Against the background of the economic downturn the scrappage scheme has proved a great success, driving UK car sales, protecting jobs and supporting the supply chain for car manufacture at a time when this sector needed it most.
“If you’re considering buying a new car, you should place your order as soon as possible to avoid disappointment, because the budget is strictly limited.”
Sue Robinson, Retail Motor Industry Federation director, said: "The decision to let the scheme continue until the end of March will provide relief for sales in the first quarter of 2010.' .
"However, the business market is still fragile with many fleet and business operators delaying the replacement of vehicles, though a few 'green shoots' have been seen in January.'
"The continuing outlook for 2010 is set to be challenging with a level of uncertainty being caused by the imminent general election, it is likely that tax rises, public spending cuts and the end of the scrappage in March will make consumers more cautious in their spending, certainly in the shorter term."
Paul Williams, chairman of the RMI, said the extension " makes sense to the industry, the economy and even the country’s coffers, give it is self financing for the Treasury with VAT rates at 17.5 per cent".
* January new car registrations rose by 29.8% to 145,479 units despite the return to the 17.5% rate for VAT and a cold snap which ground the country to a halt.
The scrappage scheme continued to boost the market accounting for 17.8% of registrations and the news that the scheme will be continuing until the end of March will allow dealers to get those final sales in.