Is it time to bring back scrappage?

Philip Nothard – Retail & Consumer Price Editor, CAP

This month we switch our focus from pre-registrations to scrappage, as the other most frequently discussed method of stimulating the retail car market. When this was last tried, the result was scrappage and replacement of approximately 400,000 vehicles. The issue has now been brought back to the fore, as reported in AM in June, when Carlos Tavares from Renault told the Reuters news agency that he would like to see support for the European and French automotive markets and the reintroduction of a scrappage scheme across Europe.  

The bald numbers, revealed in the chart above, show an increase in registrations during the 2009/10 scrappage period of 239,578 over the same period pre-scheme. Post-scrappage, registration figures fell by 183,987. Therefore, in return for a £400m public investment, there was a 14% boost in new car sales. So, was it worth it? The answer depends on who you are and where you fitted in to it.  I am specifically interested in dealers’ views of scrappage and whether they would like to see it again, given the challenge of consumer confidence in a long recession.  To say the views I unearthed in my research were mixed would be an understatement. But general opinion divides roughly evenly  between those who thought it was a great success for the motor industry and those who believe it did more harm than good, and that it shouldn’t have been run in the first place and should never return. Only a small minority said it was right for the time but should not be repeated.   

Independent specialist Jim Reid Vehicle Sales articulates one side of the argument in this way: “The winners of scrappage are the manufacturers, as they shift metal at list price, and the Government because it generates more income via VAT. The losers are the nearly new car dealers. They cannot compete as they can’t give £2000 part-exchange on a car worth £150. Conversely, the price to change for the customer may well be – and normally is – still cheaper. Dealing at falsely high list prices and artificial part-exchange prices only produces short-term gains, and actually selling cars becomes a second priority as order-taking becomes the norm.”

Another view, offered during my research, came from Stephen Brighton, MD of Hepworth Honda: “I would prefer manufacturers to continue introducing new models to stimulate the market rather than artificially boost it short term as this will give sustainable and profitable longer-term growth to both manufacturers and dealers.”

So much for stimulating new car sales. What about issues around the cars that were scrapped as a result. The SMMT reported on the 4th August 2010, that 392,466 cars were scrapped between May 2009 and July 2010.  Nobody would realistically object to removing un-roadworthy, high-polluting cars from our roads, but what of the ‘little old lady’ cars that smaller independent dealers rely on? Was it really the right thing to destroy perfectly good cars which were never going to be driven enough for their poor CO2 ratings to make an impact on the environment? Did the world – and anybody in it – really benefit from their removal?  And did those consumers who took part suddenly become participants in the dealer's perfect three-year renewal cycle?  Of course it will take some time for the answer to emerge. But we certainly do know that plenty of those 400,000 scrapped cars could have been generating profit opportunities for small dealers and giving new owners perfectly good service for many years to come.

What of the arguments in favour? Certainly, among the winners were those people who were suddenly able to afford a new car that would probably have always been out of reach before. There were short term gains for those dealers who managed to take full advantage of the scheme while it was in operation. Whether those new customers will ever come back is an unanswerable question at this point. Clearly the manufacturers who sold more units were winners and, of course, the tax man did very well. Franchise dealer service departments will probably be feeling the benefit now.  But anyone who argues that more low CO2 cars in use is environmentally beneficial has not done the maths around the raw material and energy costs of building these new cars. But it will certainly have outweighed the extra pollution generated by a small, old runabout doing 5,000 miles a year. There are even commentators who argue that many future ‘classic’ cars have now been lost forever.

It is difficult to avoid a conclusion that, if a scrappage scheme is designed to provide support for a hard-pressed British industry sector through tough times, past experience suggests it probably is not the most effective tool.

ends