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Scrappage Scheme Must Be Extended to Avoid 'Sudden and Damaging' Fall In New Car Sales


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WEYBRIDGE, UNITD KINGDOM – August 4, 2009: Glass’s is calling on the Government to extend its Scrappage Scheme at least until next summer in order to avoid a very significant fall in new car sales and a consequent collapse in revenues for car manufacturers and retailers.

With Scrappage Scheme registrations currently running at around 13,500 per week, it is estimated that the Government’s allotted funding could run out as early as October 2009, well in advance of the very earliest forecasted rise in consumer confidence. The immediate outcome, says Glass’s, would be to plunge new car orders to levels seen in the fourth quarter of 2008, with little prospect of an improvement until well into 2010.

Glass’s points to several factors that will combine to further depress consumer demand after the current Scheme ceases. In particular, it highlights the return in January of the 17.5 per cent rate of VAT, coupled with growing public awareness of rises in new car list prices amounting to around 7 per cent on average so far this year – made necessary by the falling value of the pound against the euro. Consumers may well baulk at the higher prices, it suggests, delaying any recovery still further.

“The Government should urgently re-evaluate the planned discontinuation of the Scrappage Scheme in order to avoid a sudden, pronounced and damaging fall in business,” comments Adrian Rushmore, Managing Editor at GlassGuide.co.uk. “Consumer confidence will continue to be at a low ebb at least until next summer, and without the contribution of Scrappage sales, the new car market will rapidly fall to the levels seen during the last recession, when around 1.6 million cars were sold each year.”

Rushmore says the profitability of scrappage sales for dealers and manufacturers should not be underestimated. “Retail sales generated through the Scheme often provide a better margin of profit than sales to corporate fleets. Its absence would, therefore, be felt in two ways: a loss of sales, and a loss of the most profitable sales.”

Glass’s says dealers throughout the UK want the duration of the Scheme to be extended, and the definition of what constitutes a 10-year-old car to be broadened to cover those vehicles registered on or before 28 February 2000 (V-plate). The company says there is a strong case for the Scheme to apply to vehicles that have no MOT, provided they meet the age criteria. To maximise the benefit, many dealers are also calling for the VAT increase to be deferred until later in 2010.

“A continuation of the Scheme can be a win-win for all parties,” adds Rushmore. “The Government’s existing contribution of £300 million is being offset by the additional VAT revenues accrued, so extending the scheme need not hit the public purse. Meanwhile, the new car market would gain vital support until the beginning of a wider economic recovery, rather than being returned to the perilous position of late 2008.

“For dealers and manufacturers alike, it is an opportunity to move out of a loss-making situation, with the knowledge that virtually all the Scrappage business is being done with customers who would not otherwise have considered a new car purchase. Unlike other scrappage schemes operating across Europe, there is little or no prospect of our scheme ‘pulling forward’ new business, only to suffer an immediate decline when it is withdrawn, and the used car market will be similarly unaffected.”