Call to extend scrappage scheme

The Society of Motor Manufacturers and Traders (SMMT) has urged the government to extend its car scrappage incentive scheme following increased consumer spending in the motor industry.

The scheme, which allows new car buyers to receive a £2,000 discount when scrapping a vehicle that is more than 10 years old, improved year-on-year growth of new car sales in July and August and slowed the decline of vehicle production, according to SMMT monthly figures.

Paul Everitt, SMMT chief executive, said: ‘Consumer confidence is still weak and recovery remains extremely fragile. 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 scrappage scheme is due to end in February next year. So far, more than 100,000 new vehicles have been registered under the programme with an order backlog of a further 100,000. The SMMT believes this will mean that the scheme will run out of funding by early November.

The group claims that the scheme must be extended to counter the likely negative impacts of a return to the higher rate of VAT and the introduction of the first-year Vehicle Excise Duty (VED) rates. It estimates that 70 per cent of the cars bought under the scheme represent sales that would otherwise not have happened in 2009.

It also argues that the scrappage scheme will make a major contribution to reducing CO₂ emissions. According to the group, the CO₂ emissions of a car bought under the scheme are 131.8g/km, a reduction of 13.5 per cent on the pre-scrappage market average. The group believes that this will result in an overall saving of 2.7m tonnes of CO₂.

The SMMT forecasts the new car market will finish 2009 at 1.85m units, above pre-scrappage forecasts but significantly below the 2.47m pre-recession five-year average.

This could potentially impact manufacturers such as Ford, which employs more than 4,000 staff at its engine plants in Bridgend and Dagenham. Ford has reported a 36.5 per cent increase in August output at its Dagenham plant and claims that increased production has resulted in a knock-on effect for around 100,000 UK jobs in the supply chain.

Nissan has also reported that production of the UK-built Micra and Note has increased by 33,000 units, while Toyota said that it had cancelled work-share schemes to deliver increased orders as a result of the scrappage scheme.