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BUDGET '09: Industry comments on scrappage scheme

Date: 22 April 2009

Business Secretary Lord Mandelson

:

"This is targeted action with a capped Budget and for a limited time, designed to boost the whole motor trade. This will ensure that the benefits of a scrappage scheme are balanced with the needs of other sectors of the car industry such as the second hand market, maintenance and repair businesses, and other industries that produce consumer durables or on the taxpayer.

"The car sector is under huge pressure at the moment and the government is determined it remains a very important part of our manufacturing base. It invests heavily in research and development, supports highly skilled workers and a wider supply chain. These are vital to our future manufacturing and retail success."

Julie Jenner, chairman, ACFO:


"We are disappointed that the scrappage scheme is limited to new cars and vans and has no environmental component that encourages the uptake of low emission vehicles.

"We had promoted a scrappage scheme that would have incentivised the purchase of vehicles up to four-years-old powered by engines that meet Euro4 emission standards and have a CO2 figure of 165 g/km or less.

"Such a scheme would have also had the benefit of protecting the residual values of defleeted company vehicles.

"We fear that by only including new vehicles within the scrappage scheme, demand for ex-company cars and vans will suffer as consumers turn their attention to new cars to obtain the incentive. This will obviously hit residual values.

"However, it remains to be seen how many consumers take advantage of the scheme. People who drive old cars typically do so because they just can't afford a new vehicle. Even with the £2,000 incentive a new car will still be financially out of reach for many people.

John Lewis, chief executive, BVRLA:

"Unfortunately, our ministers have chosen to follow a flawed model, which will damage this country's used car industry while boosting imports of foreign made cars.

"It would have made much more sense to follow the Dutch model. It's scrappage incentive can be used to purchase both new AND used cars and vans, provided that they were built from 2001 onwards and meet minimum emissions standards. This gives all taxpayers the added benefit of improved local air quality.

"Most people scrapping a vehicle will still not be able to afford, or access the credit they would need, to purchase a shiny new car or van.

"Allowing people to buy to a newer, more fuel-efficient vehicle they can afford would have had the government's desired impact of reducing emissions and stimulating the new car and van market, as this trading-up through the used car market will feed directly through to showrooms.

"The government seems to have ignored the close link between the used and new car markets.

"This scheme could completely stifle the recent recovery we have seen in used car prices, wiping up to £6bn off of the value of business fleets across the UK. Hit by falling values, many companies will decide that they cannot afford to sell their existing cars at the moment and will delay any new vehicle purchases until the used market recovers."

David Brennan, managing director, Leaseplan UK:

"However, fleets will be watching with baited breath. Private cars sold on dealership forecourts only account for around 44% of new car sales. If the government's proposals only apply to private purchases as we expect, a significant proportion of the impact of this creditable scheme will be lost. Flexibility over how the £2000 is used is needed. Consideration needs to be given to how the allowance can be used when leasing a car or to people looking to enter new company car schemes.

"Also, the launch of this scheme could seriously undermine the confidence seen recently in used car values and hence residuals. It is a real shame that the scrappage is unlikely to apply to any form of used car at all

"Another note of caution is also to be found in the detail of the scheme. The Government has dedicated £300million of public money to fund the scheme, but participating manufacturers will also have to match that investment."

Professor Stephen Glaister, RAC Foundation

:

"Currently the vast majority of cars are still on the road at ten years old. Indeed at 14 years old half are still on the road. The scrappage scheme announced today risks consigning a lot of perfectly good, and relatively clean, vehicles to the dustbin. However if the scrappage scheme leads to a reduction in the average age of the national car fleet then this has to be good for road safety as more modern cars will have a wider range of safety features built-in. And whilst the announcement is good for motorists and the motor industry, if it does not encourage people to buy green vehicles it is a missed opportunity as far as the environment is concerned."

Paul Philpott, managing director, Kia Motors UK:

"Kia welcomes the Government's positive response to the difficult times facing the new car market but I am personally disappointed that our Chancellor is only going half-way compared to other European governments.

"The reality is that the Government is shifting a large part of the cost of this programme onto the shoulders of the manufacturers, when it is the manufacturers who are working hard night and day to deal with the effects of the economic turmoil and recession around the world."

Tim Bowden, Head of Operations, Hitachi Capital Vehicle Solutions:

"Given that the scrappage scheme will only be available from next month up until March of next year, it seems a very short window for drivers to make these changes. With the majority of manufacturers having already wound down production, there are not as many options out there for buyers who may also still struggle to find finance for the balance of the purchase cost.

"While it is heartening to see the Chancellor take a strong environmental stance and commit to driving down CO2 emissions, any new legislation in this area will mean that manufacturers face further challenges to reduce their vehicles' CO2 output. In turn, this will place fleets under more pressure to work with more efficient manufacturers."

Jim Salkend, Chairman, Toomey Opticar:

"Whilst this scrappage scheme is to be welcomed, I'm not sure there are many people who would change up from a ten year old car to a brand new one in one step, especially given the considerably cheaper prices of pre-registered cars already available. I suspect it would be more effective if it also included late used cars, so that demand could be distributed more evenly. However, it is at least a step in the right direction."

Stephen Dilley, FleetData UK:

"The introduction of vehicle scrappage here in the UK is long overdue, but now that it is confirmed, we must not assume this will be a magic wand. £2000 on 10 year old plus vehicles will help, but not much.

"In Germany, where scrappage has reportedly been so effective, the impact has been positive in terms of new vehicle volumes, but narrow in the type and range of new vehicles put on the road as a result. The outcome has been fairly predictable, those for whom the ?2500 contribution to buy a new car would have a material impact on their decision to buy will buy at the bottom end of the market. Neither must we forget that this kind of scheme may benefit sales of new small cars, but will, by definition, rob business from the used car market.

"In the UK, we can expect a similar approach. Good for the eco brigade perhaps, but in a country where medium to long distance travel is predominantly done by car, this is little but lip-service. We have a unique structure here where the fleet buyers represent a substantial portion of all new car registrations - a scrappage scheme will do little to stimulate this market.

"We should also anticipate the drying up of manufacturer stocks as encountered in Germany, resulting in lead times on entry level models unknown previously and in the importing of vehicles by dealers outside of the manufacturer supply chain. Parallel imports could be back!"

Pete Kelly, senior director of European forecasting operations, J.D. Power and Associates:

"We believe this incentive will have a positive impact on sales during its operation, boosting sales, though this will be tempered by the impact on potential buyers of the poor economic environment and negative outlook for employment."

Alan Lunt, finance director, Lloyds TSB Autolease:

"The restriction to new vehicles is disappointing for the leasing industry and the used vehicle sector. No one is yet certain what effect the scrappage allowance will have on used car sales and values. However, it may just persuade some who would have previously purchased a used car to consider a brand new model and thereby shifting demand from used car sales to new. Although it will stimulate increased forecourt demand, it's vehicle manufacturers at the lower end of the market that will really benefit from an increase in 10-year plus trade-ins. Clearly, some makers from the Far East are best placed to capitalise on the rebate scheme. From that point of view it may not have the desired effect of providing a boost to the entire industry, but the fact that it is limited in time and budget at least demonstrates that there is not a long term intention to influence the market."

John Given, Group Sales Director, Manheim:

"We welcome any initiative that stimulates the new car market. The scrappage allowance could reduce our lower value part exchange volumes coming into Manheim Auctions but we do not believe this impact will be significant.

Mike Hind, communications manager, Cap:

CAP believes the Scrappage scheme announced today will have a limited impact on both the new and used car markets. The bulk of new car demand stimulation will be for the cheapest small cars. Consumers currently running cars of 10 or more years old are likely to require significant finance over and above the £2000 voucher. By definition they are likely to be sub-prime finance customers. This area of finance provision is subject to the greatest caution among providers. A proportion of those qualifying for the scheme may therefore still be unable to acquire the finance to purchase.

In the case of light commercial vehicles CAP is sceptical that many tradespeople with 10+ year old vans will switch straight into a new vehicle, due to the same financial factors. Any nearly new car or van of the type for which most new car demand will be stimulated will see its value reduce. Residual value reductions will therefore be limited to later used examples of the cheapest small new cars and vans.

Adrian Rushmore, managing editor, Glass's:

The majority of consumers already interested in purchasing a nearly-new car will not be existing owners of cars 10 years or older, and will therefore not be eligible for the scrappage bonus. For this reason demand will not switch from late-plate to new vehicles, harming late-plate values."

"Most of the vehicle manufacturers' share of the £2000 scrappage bonus [£1000 under the Chancellor's proposals] is already on offer to potential car buyers in the form of sales discounts and incentives. The manufacturers' scrappage bonus will largely replace these incentives, not supplement them, and today's used car values already take full account of current low transaction prices on new cars.

"The scrappage scheme is likely to increase demand for new city cars and superminis more than any other type of car. Many of these cars are already in limited supply, and the expected additional demand will merely serve to extend delivery lead times. Customers not eligible for the scheme will also find themselves joining lengthening queues, and are therefore more likely to consider a late-used alternative. In addition, manufacturers may also seize the opportunity to increase list prices on those models in the highest demand. These factors will conspire to support - or possibly even promote - prices for the nearly-new small and lower-medium car."

These factors all point to the scrappage scheme having very little impact on the used market over the coming months. While we expect values to ease back during the summer months - as they would during any typical year - we do not forecast any further increase in rates of depreciation as a result of the introduction of the scheme."

Jason Francis, managing director, Jaama:

"The launch of a scrappage scheme in a bid to kick-start new car sales is a big mistake and is hugely flawed in its logic.

"The scheme fails to address the fundamental problem in the motor industry, which is that too many cars have been produced for years and years. The production cutbacks seen in recent months have started to address that problem, but it is too little, too late.

"Consumers typically drive old 'bangers' because they can't afford new or newer vehicles. The 'scrappage' scheme will only encourage some people to take on more debt and seek to obtain more credit, which they cannot afford and may find, is unavailable to them.

Phil Moorhouse, managing director, Northgate Vehicle Hire:

"The Government's decision to introduce a 'scrappage' scheme is a short-term measure that we welcome. It will help motor manufacturers, dealers and the wider motor industry including ourselves as we also benefit from increased demand.

"As well as stimulating demand for new cars and vans, the move will also lead to the replacement of polluting old 'bangers' with new vehicles equipped with the latest low emission engine technology and safety features.

Ross Jackson, managing director, Fleet Operations:

"Although the scrappage scheme may look like a marketplace stimulant at first glance it is unlikely to prove that in reality.

"Secondhand values of existing cars are likely to suffer as some motorists take advantage of the scrappage scheme. Thus the scheme will prove to be a cost burden for many, particularly fleets.

"Additionally, the fact that the £2000 incentive is being split between the Government and participating manufacturers is likely to mean in reality that there will only be a £1000 incentive (from the Government) with manufacturers and dealers wrapping currently available discounts into the incentive package."



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