Car scrappage scheme provides sales boost

Publication date: 07 July 2009

Car sales showed their smallest decline in nearly a year in June as a government-backed scrappage plan brought buyers back into dealerships.

New car registrations, at 176,264 units, fell by 15.7 per cent year on year last month, their smallest decline since July 2008. Demand for cars in January to June was down 25.9 per cent.

The Society of Motor Manufacturers and Traders lobby group said the figures showed the industry was now “making steady progress on the long road to recovery”.

“We are now beginning to see the positive impact of the scrappage scheme translate into vehicle registrations,” Paul Everitt, the SMMT’s chief executive, said, adding that he expected to see the pace of improvement to improve in coming months. Lord Mandelson, business secretary, told Sky News that the programme had “given a shot in the arm to the car industry’’ and helped support businesses and jobs.

However, he ruled out an extension to the scheme, saying: “We must allow the scheme to take its course, but then it will be back to normal.”

Britain’s scrappage plan, introduced in May, makes no requirements on the size of cars bought under the trade-in bonus. However, small car sales have surged because they tend to be cheaper, offering consumers the biggest relative discount.

Sales of mini-segment cars were 145.4 per cent higher in June than a year ago, and superminis took a record 37.2 per cent of the market, the SMMT said. Ford’s Fiesta model was Britain’s best-selling car for the fifth time this year.

While private car sales are accelerating, fleet sales fell by 28 per cent and business sales by 35 per cent respectively last month. Ernst & Young’s automotive team said the disrepancy “suggests business confidence is still weak”.

The SMMT said it would revise its full-year car sales forecast later this month.

Scrappage schemes in other European countries led to a 4.1 per cent rise in car sales across the continent in June – their first year-on-year rise in more than a year – the consultancy JD Power said.

Britain’s “scrappage effect” has been milder than in Germany, where car sales rose by 40.5 per cent last month on the strength of its €2,500-per-car bonus.

Unlike Germany’s incentive, which is funded fully by the government – and being matched by many carmakers – Britain’s £2,000 bonus is co-funded by government and manufacturers, some of whom complained the plan was not generous enough.

JD Power said that the impact of Britain’s scheme “will likely be more modest than in other major countries” because of its less beneficial terms, and the severity of its recession.

Carmakers and industry experts are split on the long-term benefits of scrapping incentives.

While they are helping to cushion the industry during its severest downturn in decades, analysts warn they are artificially pulling forward demand and will lead to slumps when they expire. JD Power said that it expected a “market correction” to be significant enough to more than wipe out any gains in underlying demand as European economies recover.

Some carmakers are calling for the bonuses to be continued into 2010 including in the UK, where government says it will expire in March 2010, or when its £300m funding runs out.

Source: The Financial Times