Scrappage scheme set to extended (UK)

With growing pressure from automotive magazines, comsumers and journalists, The UK’s scrappage incentive scheme could be extended to the end of February 2010. The car makers' trade body, the SMMT, has met business secretary Lord Mandelson to submit a formal application for an extension, following an endorsement from motor manufacturers.

“Consumer confidence is still weak and recovery remains extremely fragile,” said SMMT chief executive Paul Everitt. “Avoiding a relapse in demand is critical to the UK economy and an extension to the scrappage incentive scheme, which has already proven its credentials as a cost-effective support mechanism, will ensure a more stable outlook for vehicle demand.”

The £300m of Government money alloted to keep the scheme afloat until next March is set to run out this October - five months early. An extension of the scheme would cost an estimated £250m extra of Government money, although additional VAT payments would offset this.

Lord Mandelson is believed to be willing to listen the industry's request because of the success of the current scheme, although a spokeswoman for the Department for Business, Enterprise & Regulatory Reform said there are "currently no plans to extend the scheme".

The car industry is lobbying hard for the scheme's extension because it is concerned that next January's VAT rise will otherwise knock sales. Under the UK car scrappage scheme a £2,000 incentive is paid to motorists who scrap cars registered before 31 August 1999 to buy a new car. The Government contributes £1,000 and the remaining amount comes from the dealers and manufacturers.

In August, UK new car sales were up 6% on 2008 levels but 2009 sales to date are 21.5% down on last year.

Manufacturers have warned against the sudden removal of scrappage. John Fleming, chairman of Ford Europe, told the BBC: “We've been very happy and very grateful that Governments, particularly Germany and the UK, have put scrappage schemes into place.

“We're worried that it's going to stop very abruptly. So what we'd like to see is it extended for a period of time.”

Tadashi Arashima, president of Toyota Europe, said: “We need some help until the first half of 2010.” Carlos Ghosn, Renault chief executive, said that winding down the scrappage schemes gradually was the "best way".

"Some countries are going to stop it brutally,” said Ghosn. "In these cases, it may be a bit bumpy." The German scrappage scheme, which has been the most successful so far, ended earlier this month, but a similar scheme in France has been extended.

A Hyundai spokesman said the company supported an extension of scrappage, warning against stopping the scheme suddenly. "If the tap is turned off there are manufacturers and dealers who will find that very hard."

Scrappage scheme facts to date:

Over 100,000 new vehicles have been registered under the scrappage scheme with an order book of a further 100,000 suggesting the scheme will run out of funding in late October/early November.

One fifth of the cars registered were either built in the UK or have an engine produced here.

The scrappage scheme is largely self-funding, with the 15% VAT paid on a car bought for £7,650 covering the £1,000 Government contribution.

76% of cars bought under the scrappage are superminis.

Ford, whose engine plants in Bridgend and Dagenham employ 4,000 people, has introduced extra shifts triggered by the increase in demand from European scrappage schemes. August output was up 36.5% at Dagenham and 18.3% at Bridgend compared with 2008. Ford estimates that this has resulted in a positive knock-on effect for around 100,000 of their UK jobs in the sales, distribution and supply chain.

Nissan has said that production of the UK-built Micra and Note has increased by an additional 33,000 units due to scrappage.

In August and September, Toyota cancelled workshare to fulfil orders created by the UK and European scrappage schemes. Toyota plans to return to the workshare arrangements in October.