Second month of strong car sales poses threat to scrappage funds

Nick Goodway
4 Sep 2009

THE “cash-for-bangers” car scrappage scheme could run out of money within eight weeks motor industry experts warned today after August saw the second successive monthly jump in car sales.

The £300 million scheme is seen as one of the Government's most visible boosts to the economy, making a greater impact than its £12.5 billion cut in VAT rates.

This month will see a huge leap in registrations and demands on the scrappage scheme as the new “59” plate comes in. While August accounts for just 3% of all car sales, September usually accounts for a massive 17%, and many dealers say people had already traded in their bangers during August, but didn't pick up their new cars until last Tuesday.

A total of 67,006 new cars were ­registered in August 2009, up 6.0% on the same month last year, the Society of Motor Manufacturers and Traders said. Private car sales — excluding fleet and company cars — were 51% higher. SMMT chief executive Paul Everitt said: “This is welcome news for the UK motor industry. The scrappage incentive scheme is having a positive impact, but with ­consumer and business confidence still fragile, there remain significant risks ahead. It is essential that these early signs of recovery are sustained into 2010.”

A Business Department spokesman said: “We are pleased to see the ­Government's scrappage scheme is delivering against its aims. But people should get their orders in quickly, as this scheme will not last forever.”

Under the scrappage scheme, which was launched by Lord Mandelson in May, drivers who trade in cars more than ten years old receive £2,000 — with half of this paid by the ­Government, and half paid by ­manufacturers — to put against a new fuel-efficient car.

The scheme was intended to last until February 2010, or until £300 million of Government funding had been used. The latest numbers, up to 23 August, show £185 million has already been spent.

A spokesman for SMMT said: “We are going to look at how September sales go very closely. But on current ­estimates, scrappage funds will run out towards the end of October, or in early November. We would like to see it go beyond the year-end, because that is when VAT rates go back up, which could hit sales.” Motor dealers have called on the Government to fund an extra 150,000 cars under the scheme costing £150 million.

Sir Trevor Chinn, chief executive of the Evans Halshaw chain owner ­Pendragon, said the scheme is effectively revenue-neutral for the Treasury. He said: “Any car which is sold for £7,500 or more — and which therefore represents the bulk of cars sold — ­produces at least £1,000 in VAT for the Government, which covers its share of the scrappage.” Peter Jones chief executive of rival dealer Lookers is enthusiastic about the scheme but also wants it extended: “There are more than nine million cars in this country which are more than ten years old, so the 300,000 funded so far is a drop in the ocean,” he said.