April 9, 2009

Scrappage is the neologism on everyone’s lips this week, it seems. March is supposed to be the biggest month of the year for car sales, what with the new plates coming in and spring being in the air and everything, but sales were down last month by over 30% year on year. That’s 138,000 fewer vehicles shifted.

New vehicles sales have been falling for 11 consecutive months, scaling-back and lay-offs are rife across the sector. UK motor manufacturers and retailers are hunkering down and praying for better times, only occasionally raising their heads to demand the government intervenes to force punters back to showrooms and forecourts.

Business Secretary, Lord Vader Mandelson threw a lifeline of sorts back in January in the form of a £2.3bn loan guarantee package, which is now up and running with Jaguar Land Rover expected to be among the first to benefit. But the loan guarantees come with green strings attached, and focus on longer-term development, so they are unlikely to have much immediate effect on sales.

Scrappage is the current big idea. Proponents propound that bribing motorists into ditching older vehicles and forking out for newer greener models is the way ahead. Something similar has already been tried in France, Germany, Spain and Italy with occasionally impressive results.

Generous incentives have seen sales rocket by 8 per cent year-on-year in France and a massive 20 per cent in Germany. The problem with trying the same thing here, of course, is that 86 per cent of cars sold here are manufactured elsewhere and just 14 per cent of vehicles made in UK factories are sold here. The government would effectively be subsidising foreign manufacturers and undermining any benefit to UK manufacturers of the weaker pound, critics argue.

Anything with any kind of positive effect on sales is clearly good news for the retail trade and potentially for component manufacturers, some of whom are reportedly already benefiting from the European initiatives. But as industry-saving initiatives go, the much-touted scrappage solution still looks like a somewhat blunt instrument.

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