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Analysis: Is it time to bring back scrappage?

Car Scrappage

By Philip Nothard, CAP retail and consumer valuation editor

My previous article looked at pre-registration as on of the most frequently discussed method of stimulating the market, but now the focus switches to scrappage.

When this was last tried, the result was the scrappage and replacement of approximately 400,000 vehicles. The issue has now been brought back to the fore, as reported in AM in June, when Carlos Tavares from Renault said he would like to see the reintroduction of a scrappage scheme across Europe.

The bald numbers (revealed in the chart below) show an increase in registrations during the 2009/10 scrappage period of 239,578 over the same period pre-scheme. Post-scrappage, registration figures fell by 183,987. So in return for a £400m public investment, there was a 14% boost in new car sales.

Was it worth it? The answer depends on who you are. I am specifically interested in dealers’ views of scrappage and whether they would like to see it again, given the challenge of consumer confidence in a long recession.

General opinion divides roughly evenly between those who thought it was a great success for the motor industry and those who believed it did more harm than good, that it shouldn’t have been run in the first place and should never return. Only a small minority said it was right for the time but should not be repeated.

Independent specialist Jim Reid Vehicle Sales articulates one side of the argument in this way: “The winners of scrappage are the manufacturers, as they shift metal at list price, and the Government because it generates more income via VAT.

The losers are the nearly new car dealers. They cannot compete as they can’t give £2,000 part-exchange on a car worth £150. Conversely, the price to change for the customer may well be – and normally is – still cheaper. Dealing at falsely high list prices and artificial part-exchange prices only produces short-term gains, and actually selling cars becomes a second priority as order-taking becomes the norm.”

Another view through my research came from Stephen Brighton, MD of Hepworth Honda: “I would prefer manufacturers to continue introducing new models to stimulate the market rather than artificially boost it short-term as this will give sustainable and profitable longer-term growth to both manufacturers and dealers.”

So much for stimulating new car sales. What about the cars that were scrapped as a result? Nobody would object to removing unroadworthy, high-polluting cars from our roads, but what of the ‘little old lady’ cars that smaller independent dealers rely on? Was it right to destroy cars which were never going to be driven enough for their poor CO2 ratings to make an impact on the environment? Plenty of those scrapped cars could have been generating profit opportunities for small dealers and giving new owners perfectly good service for many years to come.

What of the arguments in favour? Among the winners were those people who could suddenly afford a new car that was out of reach before. There were short-term gains for dealers who took full advantage of the scheme. The manufacturers who sold more units were winners and so was the tax man. But anyone who thinks more low-CO2 cars in use is environmentally beneficial has not done the maths around the raw material and energy costs of building these new cars.

Past experience suggests a scrappage scheme is probably not the most effective tool to support a hard-pressed British industry sector through tough times.


 

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Comments

  • LINGsCARS.com - 16/10/2012 15:27

    Utter idiocy to bring this back. Not only did many lovely old cars get scrapped, including future classics, but it was a knee-jerk Jam Today, Rob Peter to Pay Paul strategy. It was environmental madness. Taxpayer funded party for car manufacturers. The UK ended up shipping UK taxpayers' £££millions to South Korea, remember? Kia and Hyundai sales went through the roof. Insane. Lunacy. And. Mentalism. ...by vested interests. This stinks of corruption. Ling

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  • UmeshSamani - 16/10/2012 15:38

    Definitely NOT worth brining back! I’ve said before, some of the ‘little gems’ got destroyed for ever for the wrong reasons, the people who drive the ‘bangers’ do that most for a reason – they cannot afford anything better – these ‘bangers’ are still on the road, still polluting, and some of them still probably death traps as these people cannot afford to maintain them/or keep legal let alone get into a new car. The ‘deals’ are still available , many dealers ‘knocking’ off well in excess of £2000/3000 off LIST So if these additional ‘bonus’s – margins’ are available why not reduce the ‘list’ price , AND I’m sure that will stimulate the new car market. UMESH SAMANI Specialist Cars Stoke

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  • motoman - 16/10/2012 16:03

    Definitley NOT As an MOT garage chain, I saw too many good cars with plenty of useful life in them MOT'd in order to get destroyed days later. On top of this it cost independent garages dearly by taking 1.2 million MOT's out of the system over 3 years and all the attendant service and repair work for the 400'00 cars crushed. If the deal was for old tat that was on a SORN with no hope of ever passing an MOT then maybe, but destroying perfectly good cars that could be usefully passed down the chain and putting more pressure on the hard pressed independent sector, for dubious environmental claims makes no sense. John Ball

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  • JimPunter - 17/10/2012 08:56

    Definitely NOT - It would be a disaster for the independent garage aftermarket. Why should the car makers and their dealerships be subsidised by the Government to the detriment of small businesses? Of course Renault would like this introduced across Europe - their car factories would then be subsidised by tax payers throughout Europe, including the UK - as, of course, would other car makers world-wide. Here's a better idea. Perhaps Government should be encouraged to give, say, £50 - £100 to every motorists towards their MOT repair bill should their car fail the MOT. This would then assist struggling small garage repair businesses and would also make the roads safer reducing death and injury on the roads! Another 'scrappage scheme'? What a daft idea! Jim Punter

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  • van - 17/10/2012 09:12

    Maybe an alternative idea to scrappage but to stimulate car sales would be a new 'Green to Go' scheme, whereby consumers who p/x within the next three months for a more economical new car would receive a Manf/Govt cash back bonus. This could be based upon CO or govt imperial fuel figures which would determine the size of cash back voucher i.e 20% more economical = £500, 25% = £750 etc, Could give the consumer a serious reason to change, and generate some good PX's for dealers. Regards Autotrade-mail.com

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