News cars for old - assessing the Scrappage scheme

It appeared that the Chancellor was initally reluctant to introduce a car scrappage scheme, but evidently he was persuaded of the merits. In Budget 2009 he announced an investment of £300 million in a £1,000 subsidy when a 10 year old car was scrapped and a new car purchased. It's clear that the public liked the scheme, since the take-up was rapid. By the end of October, more than 215,000 new cars had been registered under the scheme. In mid-September, Lord Mandelson announced a £100 million extension, so that it will end up benefitting a total of 400,000 vehicle purchases.

The Treasury Select Committee noted that the scheme was likely to benefit foreign-made vehicles - 86% of cars sold in the UK are manufactured overseas - and this has proved to be the case. It's estimated that about 80% of purchases have been small cars - most of which are made outside the UK. In fact, SMMT figures show that the biggest beneficiary has been Hyundai/Kia of South Korea, with about 20% of total sales. Car imports to satisfy scrappage sales accounted for one third of the recent increase in imports.

UK plants that have benefitted from the scheme include Vauxhall, Toyota, Nissan and Mini, as well as Ford's engine plants. It's estimated that UK makers probably account for something like 15-20% of sales. UK main dealers of course benfit from all sales, although perhaps the independent servicing sector won't be happy at losing the maintenance for the scrapped cars.

What's the real cost of the scheme? VAT is paid on cars and the amount paid on most small cars will be at least £1,000 - at least equal to the scrappage subsidy. The key question, therefore, is whether the cars sold under the scheme would have been sold anyway, or whether they represent additional purchases. The SMMT estimates that something like 1.8 million new cars will be sold this year - 25% down on the pre-recession figures. It will take a detailed survey after the scheme closes to assess what percentage would have been sold anyway - either this year, or next.

Perhaps the oddest fact is that 17 Porsches have been sold under the scheme!