Crunch time as car scrappage scheme is dumped .

Industry body predicts 10pc fall in car sales as incentive scheme ends.

The Government's £400m car scrappage scheme has closed.

 

Trevor Finn was sceptical when Alistair Darling announced the car scrappage scheme in last year's Budget.
However, following the closure of the incentive last week, the chief executive of Pendragon has called for the Government to extend the scheme.
His enthusiasm reflects the impact the scheme has had on car sales and Pendragon, the UK's largest car dealership group, since its introduction on May 18, 2009.
An industry being ravaged by job cuts, pay cuts and plant closures has been revitalised.
However, his enthusiasm also reflects the major challenges that manufacturers, dealers and suppliers face without the scrappage incentive in 2010.
"The rationale for ending it hasn't taken in all the considerations," Mr Finn states. "I started off very sceptical about it but at the end it has turned out to be hugely successful."
Finn claims the scheme has been self-funding, because the vast majority of people who bought a new car would otherwise have bought a used car, on which the Government can only charge VAT on the profit the dealer makes rather than the sale price.
A report by the National Audit Office claimed the £400m scheme had not been value for taxpayer money because it simply brought forward car sales into 2009 from 2010 and 2011, meaning VAT was charged on lower prices and the 15pc rate. It estimated the scheme brought in £116m of immediate tax benefits, but would cost £18m in the long-term.
However, Mr Finn "totally disagrees" with the NAO. "The issue is that they haven't got the detail that I have, so they believe what they believe," he says. "The million dollar question was: would the consumer have bought a new car anyway? That was the major concern of the Treasury about launching the scheme. But a survey we did of scrappage buyers was that 70pc had never bought a new car and 82pc would definitely not have bought a new car without scrappage."
The cash-for-bangers programme, already successful in other European countries, offered a £2,000 discount, half from Government and half from the industry, to scrap a car of more than 10 years old and buy a new . The initial allocation was for 300,000 cars, although this was extended in September to 400,000.
In March 2009, traditionally the busiest month of the year in the UK, car sales fell 30.5pc compared with the previous year. But, with scrappage, sales have been up in every month since July, including by 57.6pc in November. Also, although around 75pc of cars made in the UK are exported, production in the country has increased. Plants such as Nissan's in Sunderland, the biggest in the UK, put on extra shifts to meet demand for the Micra and Qashqai.
Apart from Nissan, however, the material impact on leading car manufacturers based in the UK has been mixed. While Mini in Oxford returned to a seven-day week, Jaguar Land Rover said the scheme had a "minimal impact", while even Vauxhall, although benefiting from increased footfall into dealerships, said it "didn't do as well as some value brands".
Makers of small cars enjoyed the strongest benefit, with the £5,000 to £7,000 range proving particularly attractive to consumers. This meant that Hyundai and Kia sales grew at the astonishing pace of 102pc and 62pc respectively in 2009, allowing them to claim unprecedented levels of market share. But neither has a manufacturing base in the country.
The Society of Motor Manufacturers and Traders is forecasting that sales in the UK will fall 10pc this year without scrappage, and countries such as Germany are expected to fare worse. In response to the fragile markets, Toyota has said its Burnaston plant was closing for an extra week over Easter, and Bosch was closing its car parts plant in Wales with the loss of up to 900 jobs - "a disaster," says Mr Newton.
The Government has received praise for some of its actions for the car industry beyond the scrappage scheme, such as attracting Nissan, Honda and Toyota to manufacture low-carbon vehicles in the country. However, its Automotive Assistance Programme, a £2.3bn collection of loan guarantees, did not help a single company last year and has been widely derided.
With many plants located in key marginal seats, it promises to be a key election issue. Jerry Blackett, chief executive of the Birmingham Chamber of Commerce and Industry, said: "Rationally, it is not the biggest driver of our economy, but emotionally it is a key part of our legacy.
"The Government response was slow. Businesses were pleased to see the banks kept going, but I don't think anyone has worked out what a good manufacturing strategy looks like."