Fall in car production prompts scrappage extension pleas

Posted on 25 Sep 2009 by The Manufacturer

Car production figures dropped 31.5 per cent in August, providing a reminder that despite an upturn in recent months the industry continues to struggle with overstocking and weak demand just before the scrappage scheme is set to end.

The fall is steeper than the 23.7 per cent decline recorded in July when the initial demand from government’s £2,000 discount scheme manifested itself as an upward gear shift on UK production lines.

Although cars built for the UK market reached a 56 month high of 33.8 per cent, that is as indicative of poor exporting levels as it is increasing demand at home.

Industry insiders are concerned that the scrappage scheme looks likely to end next week, as all of government’s £300m budget for the programme will be used up. Already weak demand will be weakened further and destocking programmes will not be completed which will further delay a return to normal production levels.

“Underlying demand remains weak and the recovery is still extremely fragile,” said Paul Everitt chief executive of the Society of Motor Manufacturers and Traders as he called for the scheme to be extended to its original deadline of February next year.

David Raistrick of accountants Deloitte wants the scheme extended even further. He said government should put up another £300m or see the scheme through until next June.

“This is the wrong time for the industry to lose the support of scrappage which has without doubt boosted car registration figures and helped production figures,” he said, before pointing out that government technically reclaims the money it puts up through the tax and VAT accrued on the sale.

“To avoid consumer confusion any extension needs to be announced in the next week or two,” Raistrick added.

Also backing the calls is EEF, the manufacturers’ organisation, which has written a letter to Chancellor Alistair Darling petitioning the case. The organisation is arguing that upholding Britain’s position in the global automotive industry is of paramount importance if government truly wants engineering to be the sector that leads the country out of recession, especially given the likely cuts that the aerospace and defence industry will face next year.

“The success of the scrappage scheme has been clear for all to see and has put a floor under manufacturing recession and helped retain skilled employees,” said its director of policy and TM blogger Steve Radley. “However, it is no means certain that this positive trend will continue in the near future with consumer confidence still fragile and unemployment still rising. Failure to extend the scheme before a stronger recovery is in place runs the risk of pulling the rug from under the automotive sector, damaging key supply chains and prospects for a better balanced economy in the upturn.”

Overall, car production is now 44.6 per cent down for the year to date.