Mandelson - No Promises

“If the scheme ends in October and is followed by a 2% increase in VAT in January it will be a serious blow to the British car industry that’s just getting back on its feet.” warns Paul Everitt, CEO – SMMT.

Executives from the motor industry met with Business Secretary Lord Mandelson last week and called for an extension to the Car Scrappage Scheme by increasing the Government provided subsidy by a further £200m. The initial Government sum which kick started the Scrappage Scheme in May was £300m and is forecast to run out in October.

The industry is warning that failure to provide further subsidy may result in workforces being forced back on to shorter working weeks with job security at risk.

Paul Everitt, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT) was quoted to have said “Without an extension there’s a real risk of an abrupt slump in sales that will create further uncertainty for thousands of car workers with the likelihood of short-time working.”

A Department of Business spokesman confirmed a meeting was to take place, but said there were no plans to extend the Car Scrappage Scheme.

Since the Car Scrappage Scheme was launched in April 2009 around 200,000 new cars have been bought, which has helped to sustain employment within and connected to the motor industry.

Topping the Scrappage Table - the Hyundai i10

The Society of Motor Manufacturers and Traders (SMMT) has said the UK Car Scrappage Scheme has begun to have a “positive impact” on the industry as the decline in new car sales slowed to its lowest rates for almost a year.

176,264 new cars were sold in June, 15% above the SMMT prediction of 153,000, and new car registrations were down 15.7% compared with the same month last year, a significant improvement on the 25% drop seen in May.

The top selling car in June was the Ford Fiesta, with the Focus second and Vauxhall claiming 3rd and 4th with the Corsa and Astra respectively.

Topping the list of cars sold through the scrappage scheme in June however is Hyundai who sold 3,042 cars, well in excess of Toyota (2,586), Ford (2,066) and Fiat (1,743).

29,796 vehicles have now been sold through the scrappage scheme since its inception on May 18th according to the SMMT, whilst government figures show that some 87,000 orders had been placed up to and including June 21st.

Top Selling Car for June - the Ford Fiesta

Notably, demand for small cars has shot up with the “mini” sector showing 145.4% growth over the year and in addition, “superminis” took a record 37.2% share of the market.

Ian Robertson, BMW Group MD commented: “From the first quarter to the second quarter of the year, there was a stabilisation of a negative trend” following the introduction of cheaper entry models into the scheme for both its BMW and Mini brands.

Hyundai’s UK MD Tony Whitehorn said that “scrappage customers” we generally going for small cars and were often their first brand new vehicle. Hyundai report that UK sales have almost doubled from the same month a year ago, thanks largely to the scheme.

The Department for Business, Innovation and Skills has pointed out that at the current rate, the scheme would be exhausted by the end of October, well in advance of the projected March 2010 end date.

Professor David Bailey, director of Coventry University Business School said that pressure would be on the government to extend the scheme, something which the Business Department is currently “adamant” won’t happen.

Bailey also noted that the car industry wouldn’t properly start to recover until wider confidence and the housing market picks up.

Retirees are flocking to showrooms having thought through the economics and opportunities on the UK forecourts. Trevor Finn, CEO of Pendragon has said the large proportion of interest in the scrappage scheme was coming from retired motorists. One Citroen dealer last week reported over 70% of scrappage scheme enquiries coming from the older driver. Pendragon believes that this is the emerging trend.

Trevor Finn went on to confirm -  “A high proportion of the people who have applied are people who are on fixed incomes, particularly retired people who have had cars for a long time and are paying in cash.” The ecomonics are such that the retired demographic consider the scrappage scheme’s £2,000 subsidy to offer better value when compared to the current low return achieved on savings accounts and the poor and volatile performance of equity investments. Baby boomers are saying ‘Live the dream, buy the car’.

Pendragon’s Finn went on to confirm that he believed the car scrappage scheme is starting to drive showroom enquiries.

Dealerships have already begun selling the scrappage vehicles to scrap merchants, with Cartakeback manager, Graham Price saying “The indications are that several thousand cars have been pre-sold under the scheme.” Cartakeback handles the transfer of scrappage vehicles between car dealers and scrap yards, and is estimated to deal with around 70% of the scrappage volume during the scheme.

Any motorist failing to do so will need to provide evidence that they lived in both addresses, or else run the risk of being denied the total £2,000 subsidy. Last year a police study found that around three percent of cars on the road were registered to the wrong address.

And now uSwitch, a price comparison website, has found that those people who do participate in the scheme will find the benefit of the subsidy wiped out within 88 days due to the rapid rate of depreciation on new vehicles. New cars will on average drop in value by some 49 percent in their first year.

Furthermore, motorists should brace themselves for a hike in the cost of their insurance policy due to the increased value of their new car versus their old vehicle.

The industry however still had high hopes that the Car Scrappage Scheme will kick start demand for cars in Britain, much as it has done in Germany following the introduction of a similar scheme earlier this year.

The Society of Motor Manufacturers and Traders have reported a sharp rise in potential buyers, whilst Sue Robinson, Director of the Retail Motor Industry Federation said that dealers had reported a “marked increase in enquiries since the scheme was announced in the Budget in April.”

Car Scrappage Panic

Car buyers planning on purchasing new cars through the Government’s Car Scrappage Scheme may find they’re unable to drive-off the forecourts when the scheme goes live on Monday 18th May, due to a VAT row between manufacturers and the Government.

Manufacturing bosses are claiming the Car Scrappage Scheme has plunged into chaos due to a Government error with the scheme’s details. Motor industry leaders are saying this weekend that some manufacturers may delay joining the scheme having failed to reach agreement with the Government. The dispute is apparently affecting all 39 carmakers who are signed up to the scheme.

The cost of the Car Scrappage Scheme is being split between the Government and the motor industry, however the Society of Motor Manufacturers and Traders said: “The dispute probably means some manufacturers will not be able to deliver vehicles to customers on Monday. We are seeking clarification about the VAT split between manufacturers and dealers, and how it is administered.”

The Department for Business insisted that manufacturers who had signed up to the scheme were made very clear of the terms and conditions.

The very latest Car Scrappage Scheme Survey is revealing over 50% of those surveyed and interested in the scheme are serious buyers.

Nearly 75% of those surveyed are looking to trade in their old motor for a new £10,000 or below model. It would appear dealerships offering attractive deals on the fuel efficient lower end market stand to increase sales.

However, it appears that the scrappage scheme is not just limited to the cost effective end of the market. Just over 23% of potential consumers are considering utilising the scheme to fund the purchase of vehicles in £10k – £20k range -the larger engine higher specification models.

The UK consumer is evidently working the numbers to their advantage. And why not say the Car Scrappage Scheme as they have little to lose in purchasing a new car through the scheme. But cynicism has recently arose from various quarters of the media claiming that some UK dealerships are including previous sale discounts as part of their portion of the scheme’s £2,000 subsidy. Therefore, the price of showroom models are only being reduced by a further £1,000 – as provided by the Government. However, UK consumers are savvy folk and will use all their social networks and resources to compare prices across dealerships. We would say – ‘Do plenty of research before jumping in’.

The Car Scrappage Scheme begins on Monday 18th 2009 and we anticipate an increase in internet and showroom enquiries.

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The Department of Business Enterprise and Regulatory Reform (BERR) stated that cars will be dealt with as ordinary end-of-life vehicles through the manufacturers. The BERR also confirmed that the scheme’s main objective was to boost the car industry’s production and sales and therefore the scrappage industry together with the environmental benefits were of secondary importance.

Ian Hetherington Director General of the British Metal Recycling Association is of the opinion that the Government have failed to address their concerns that only 30 per cent of all Approved Treatment Facilities (AFTs) are being made accessible through the “end of life vehicle” regulations. Furthermore, the UK scrap industry is of the opinion that the Government has failed to clarify details of the car scrappage scheme including the scrappage and collection rules. The scheme begins on 18 May 2009 with the UK consumer also unclear as to the final details.

Ford forecasts that it will gain 20% of the car scrappage scheme market. The manufacturer has 130 ATFs and 20 collection points across the UK, which they believe is sufficient in accommodating the increased scrap volume once the scheme commences next week.

Cartakeback.com are the dismantling contractor to Ford and Manager Graham Price stated that car manufacturers are using their own contracted ATFs as these providers guarantee the 85% recycling compliance rate. Car manufacturers have the facility to ensure that this 85% recycling rate is being achieved by only nominating specific ATFs. A good percentage of the Government ATFs are yet to report their target achievements to the BERR, thereby making themselves less attractive to car manufacturers.

Parker’s surveyed 600 visitors to their web site and found that c.70% said the the Government’s contribution to the car scrappage scheme was insufficient. Furthermore, 81% stated they would not be taking part in the scheme.

Based on the Car Scrappage Team’s own survey data, it would appear the poor reception from the consumer only relates to the Government’s small contribution, rather than the car deals being offered by UK dealers. Moreover, dealers are acting fast with numerous car deals.

From what can be currently gleaned from this evolving market, the car scrappage scheme is becoming a 10 month sale with pro-active dealers offering new or nearly new models, offered through their own discounts under the “Car Scrappage Scheme” banner. Therefore, the level of subsidy being provided by the Government may be becoming just an extra bonus saving, which dealers can add to the deal.

Gareth Thomas, the Consumer Affairs Minister  said “I don’t think this will be a flop. But you’re right to say there are good deals in the market already.”, i.e. under the “Car Scrappage Scheme” banner.

This may be a win-win situation for UK consumers searching for a new car deal, as they’re being offered attractive dealer discounts together with the £1,000 Government subsidy.

Hyundai is reporting that enquiries are up 400% at its dealerships since the scheme was announced, whilst Ford say that its car scrappage scheme section went live on its website, as many visits were received as to its most popular page within just a few days.

Similarly, Toyota are reporting ‘major increases in traffic’ to its website, Audi have noted significant interest in the scrappage scheme area of its website and Peugeot dealers are getting 60 to 80 more enquiries as well as a ‘massive increase’ in website traffic since the scheme was announced.

Nissan are seeing more visits to its dealerships since the Budget announcement although many of the visitors we trying to find the cheapest car possible. If this is the trend through the industry, it points towards the likelihood that stimulus will not be to the whole of the industry, but rather skewed towards the cheaper end of the market.

It is widely expected that May 18 is the date from which the scheme will commence, with an official announcement expected imminently.