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Is the Government's car scrapping scheme working?

PUBLISHED: 07:20 27 May 2009 | UPDATED: 09:47 06 July 2010

Is car scrapping scheme working?

Is car scrapping scheme working?

The government's much trumpeted "cash for bangers" scheme was supposed to rejuvenate the beleaguered car building industry but is it also good news for customers and what about the dealers they buy from?

Just over a week after the scrappage scheme began, EDP REPORTERS test the waters.

The government's much trumpeted “cash for bangers” scheme was supposed to rejuvenate the beleaguered car building industry but is it also good news for customers and what about the dealers they buy from?

Just over a week after the scrappage scheme began, EDP REPORTERS test the waters.

East Anglia's new car dealers believe the government's highly anticipated scrappage scheme could still leave them out of pocket, despite an increase in buyers.

The scheme, which started on May 18, sees motorists given £2,000 towards a new car if they scrap their old one, which must be over 10-years-old.

But while the initiative, half funded by the Treasury and half by manufacturers and dealers, was designed as a lifeline to the ailing car industry - on which at least 800,000 jobs depend - customers and dealers have been left asking, what about us?

An EDP poll of dealers, has discovered that while there has been an increase in sales, some are still unhappy with the scheme, which they believe is more work than it is worth.

Simon Eiken, general sales manager at Desira Yarmouth, went as far as saying the scheme was a waste of time.

He said: “The profits are minimal compared to the work involved. Yes it is good for car manufactures but for dealers it is a lot of work.

“At the moment we are putting in a lot of work to get jack out of the other end. Personally, I would scrap the whole system now.”

The showroom would normally make a profit of £800 per vehicle sold but under the scrappage scheme they make £416 and, while they are selling between 30-40pc more, the fall in unit profit negates the rise.

According to the Society of Motor Manufacturers and Traders (SMMT), car production for the first four months of the year was 56.2pc down - reflecting dramatic cuts by car makers as they coped with the slump in demand as the recession took hold.

The industry is pinning its hopes on the scheme to reverse a trend which has seen car makers facing their worst crisis since the early 1990s.

Thirty-nine car brands have entered the scheme, with only luxury car-makers such as Rolls-Royce, Aston Martin and Ferrari declining.

Last-minute doubts over VAT arrangements delayed participation by Ford and Honda on launch-day but both are now signed up.

Rob Woods, business manager for Holden Renault in Norwich, said the scrappage scheme had brought in customers.

“I have a mixed response really, we are doing more deals but the government has decided to give away £1,000 of our money, which we perhaps didn't have to give away in the first place,” he said.

“From a customer point of view it is generating more interest and people are talking about changing their cars whereas they might not otherwise have thought of doing so.”

Sean Terrington, sales manager at Citroen dealer Duff Morgan in Norwich, said the car maker had introduced its own scrappage deal in April, which was already bringing in new sales with total orders up about 10pc.

He said: “We are certainly seeing new people coming into our showroom who wouldn't have ever considered buying new cars in the past. We have sold 22 cars off the back of the scheme and that is 22 registrations we wouldn't have got before that scheme.”

And he said the scheme had not had adverse effects on used car sales.

Andrew McCrostie at Robinsons, which has dealerships in Lowestoft and Norwich, said: “It has been very successful so far and inquiries are going up as time goes on and people become more aware of it. It is certainly bringing people into the dealerships.

“I think that about half of the interest is for the smaller cars in our ranges, so the Volkswagen Fox and Polo.”

David Wightman, managing director of East Bilney Garage, near Dereham, said: “The effect of the car scrappage scheme has been quite positive. We have seen an uplift in new car sales that we can attribute to the scheme.

“Potentially we are seeing about a 25pc increase in sales since the scheme has been introduced.”

In King's Lynn, the Audi dealer said they have had a couple of sales since the scheme began.

Colin Denton, sales manager said: “We've had inquiries that have resulted in a couple of sales. I do not think we are going to be the biggest contributor to the scheme though, but we have had uptake.”

While at Hylton Gott in Downham Market, which deal in Swedish-made Volvos and Japanese Sabaru and Isuzu cars, there has also been some take up.

Caroline Armsby, sales administrator, said: “We've had five or six orders across the makes. They are not cheap cars, I would say it's quite surprising we've had what we've had.”

She added that it was not the green cars people had been going for but pick-up trucks and smaller Volvos.

Steve Wilson, sales manager at Ames of Thetford, said: “We are having a lot of inquiries, there seems to be 10-year-old cars coming out of the wood work.

“There is a lot of legislation in place of what you can and can't do - it has to have been owned for a year, it can't be a category C write-off or higher, but it is letting people get cheap cars.

“People are interested in the cheaper economical cars, like the Kia Picanto of Hyundai i10 or i20.

“The only problem is the manufacturers are running out of cars. It is good news because more people are coming in and we have done deals so it is working quite well.

“It is a good source of new inquiries and we have had similar results at all our franchises.”

Mark Murphy, brand manager at Cookes VW dealership in Fakenham, said: “We have had quite a bit of interest, with about 10 sales off the back of the scheme since it was introduced. We have been pleasantly surprised by the response.

“We thought that people with an old car which was eligible might not necessarily look at a new VW because of the jump in value, but it seems to have energised some customers who have seen an opportunity to take the leap and buy a quality product that is going to last them for 10 years. That is a dynamic I did not expect.”

Motorists might find the scrappage deal is not right for everyone, according to Which? Car magazine.

Consumers most likely to benefit from the £2,000 incentive are those who are buying a small car - such as a city car or supermini - as the scheme will deliver at least a 20pc discount if the car's list price is £10,000 or less.

Richard Headland, editor of Which? Car, said: “Don't assume just because you're getting £2,000 off a new car, you're getting a good deal. On cars less than £10,000, you probably are. On more expensive cars, shop around for a bigger scrappage discount or check if buying second-hand is cheaper. If so, it may pay to sell your old banger instead of scrapping it.”

Which? Car, an independent consumer champion, has found five scrappage deals for less than £5,000 which offer better discounts of around 30pc.

Kia Picanto. The cheapest scrappage deal in the UK remains Kia's official offer on the entry-level Picanto for £4,195 (32pc off).

Suzuki Alto. Suzuki's city car is normally priced at £6,795 (1.0 Alto SZ2). Under the scrappage scheme, you can buy it for £4,795 (29pc off).

VW Fox. VW's city car is basic but with £2,000 off the cheapest Fox 1.2 3dr model, it could be on your drive for just £4,845 (29pc off).

Fiat Panda. Fiat is offering an additional £100 saving on top of the usual £2,000 scrappage incentive, taking the list price of the Fiat Panda 1.1 Active ECO down from £7,095 to £4,995 (30pc off).

Hyundai i10. Hyundai is offering a similar £2,100 deal on the i10 1.2 Classic city car, taking its price down to £4,995 (30pc off).

The scheme began on May 18 and will run until February 2010, or government cash runs out.

Motorists trade in their old car - or van under 3.5 tons - for a £2,000 discount on a new vehicle. The discount comes in the form of a £1,000 government grant and another £1,000 matched by dealers and manufacturers.

The government has set aside £300m to pay for its part of the scheme, but it will only cost it £1,000 per car sold, and in the end the scheme could potentially bring in more than that in added VAT revenues.

A similar scheme in Germany has proven to be so popular that the government extended it until the end of the year, raising the budget for it from 1.5bn to 5bn euros.

Scrappage schemes in some other countries do not allow motorists to part-exchange old models for gas-guzzlers - but there is no such restriction on the UK scheme, which has angered green campaigners.

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