April 23, 2009

In his Budget statement to the House of Commons yesterday (22 April 2009), Chancellor of the Exchequer Alistair Darling confirmed that a government incentive scheme will be to scrap older cars will be introduced.

The details are as follows:-

•A total of £2,000 will be offered in a “cash-for-scrap” scheme for 10-year-old, or older, cars.
•The £2,000 saving will be made up of £1,000 from the government and £1,000 from the relevant car manufacturer.
•Participation in the scrappage scheme by specific car manufacturers is voluntary.
•The funding will be made up of £300million from the government – a figure that will be matched by manufacturers participating in the scheme.
•The scheme is expected to be introduced in mid-May.
•The scheme will run until the start of March 2010, or until all of the government funding has been used.
•The discount will be offered to consumers buying a new vehicle to replace a vehicle which they have owned for more than twelve months.
•The registered keeper must have a UK address.
•Eligible vehicles must have been first registered in the UK on or before 31 July 1999 and have a current MOT test certificate.
•Scrappage savings apply to commercial vans (up to 3.5 tonnes) as well as cars.
•The scheme will be audited by the DVLA.
• Scrappage trade-ins can only be made against new cars.
 
This scheme is designed to try and coerce the UK’s motorists back into the showroom.  New car sales have fallen off a cliff and many car makers are now seeking government help to see out the downturn.

The scheme’s quick introduction comes part way to showing a good level of commitment to the project.  The only main hiatus coming from the confirmed participation of manufacturers, who are liable for half of the £2,000 reward for scrapping cars.

BMW have committed to participate in the scheme for all cars in their range, including the Mini.

They have illustrated how the scheme would work with the new 116i sport:-

To see how the new scrappage incentive will affect new car buyers, the example below outlines the financial savings that are possible. Now a customer will be able to get behind the wheel of a new BMW 116i Sport for just £242 a month, with zero deposit. With the government scrappage payment, the matching BMW offer and an additional dealer contribution the total discount available on this model equates to £3,260.

This particular promotion is for the 116i only, and features a £6,574 final payment, but does put the chance of owning a brand new BMW within the reach of many who would previously that impossible.

Only time will tell how successful the scheme is.  It’s obviously dependant on the manufacturers making their contribution, but as more of them do any that aren’t will essentially be forced into doing so, after all would you go to one that didn’t? 

The scheme looks to be well thought out and with some of the deals out there it could well get those with secure jobs and older cars into the showroom for the first time in a decade.  A similar scheme saw the German car industry record its highest sales figures in a decade. The fact that it starts soon means that the lag of people waiting won’t be too long and won’t therefore stifle the market in the short term.  The finite pot people may encourage potential buyers to be more decisive. 

The first 300,000 motorists to commit to a new car will get the reward, so while there will be no immediate rush there is still only a finite amount to be claimed.  What will happen to the car market afterwards is anyone’s guess but given that it will be in the next parliament I doubt it will keep either Gordon or Alastair awake at night...

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