Scrappage – one month on

Posted on 25 Jun 2009 by The Manufacturer

David Raistrick of Deloitte writes on the performance of the UK scrappage scheme...

David Raistrick, UK manufacturing industry leader at Deloitte writes on the performance of the UK scrappage scheme which has been in place since May 2009.

The scrappage scheme has now been in place in the UK for just over one month. I believe the scheme is an excellent mechanism to help support the sector, and the early signs of increased vehicle sales will greatly assist parts of the automotive industry.

However, while the scrappage scheme is well intentioned and has evidently increased vehicle sales (which at last official count reached 60,000), many industry sources have commented to me that it is too blunt an instrument in its current form and lacks important environmental considerations, such as encouraging people to buy more fuel efficient vehicles.

Since the scheme was introduced, we have seen an upsurge in car sales, but as with the experience in Germany, this has been largely limited to smaller vehicles that are at the lower-end of the price spectrum. The scrappage scheme is not having a widespread impact on the automotive industry as a whole, rather only a very limited percentage of UK manufacturers are benefiting and even then this is limited to a few vehicles within their range.

On the surface, these smaller vehicles would appear to be the most environmentally friendly options. This is not entirely true however as there are numerous mid sized cars which are more environmentally considerate. This has not been factored in.

What elements could have made the scheme better?

A more sophisticated version of the scheme would have been ideal, with further environmental aspects incorporated such as varying levels of government support dependant upon a car’s CO2 efficiency. The current scheme does not positively encourage people to buy more fuel efficient vehicles.

Furthermore, the current version does not allow pre-registered vehicles (up to a year old) to be included. It would have been ideal if the scheme allowed for vehicles up to 12 months old to be included, together with varying levels of government support according to the environmental credentials of the vehicle.

What will also be interesting is whether the scheme is extended beyond the current £300m support cap. If scrappage is simply resulting in additional discounts to buyers, one would presume not. On the other hand, if the government/industry believes that these scrappage scheme sales would not have otherwise taken place, then the scheme becomes self financing for the Treasury, with the additional VAT income received exceeding the £1000 per vehicle funding cost.

But there is of course an ongoing cost for the manufacturers taking part in the scheme. Only time will tell whether the initiative stimulates enough sales to offset these costs and ultimately render the move a success.

Tell us what you think. How could the scheme be improved? Is it a success? Should it be refined and carried on, left unchanged, or should the scrappage scheme be scrapped? What other ways can government and manufacturers induce car sales while consumers are so short of credit? Email [email protected].