Blog: Scrappage incentive for UK?
Dave Leggett | 28 January 2009
I guess yesterday's British government announcement of loan guarantees for the UK's auto industry (that's firms operating here, not UK in the ownership sense) was a positive step, helping operations with immediate cash difficulties to ride the recession. But I can't help thinking it was a bit of a damp squib and more action is needed to address the central problem: the lack of industry volume stemming from problems on the demand side.
I'd have liked to see something a bit more imaginative - maybe measures directly aimed at freeing up car finance or a scrappage incentive.
I have heard that proposals for a scrappage incentive were initially rejected by BERR (the department for Business Enterprise and Regulatory Reform - the latest acronym for the Department of Trade and Industry) on the grounds that it is less targeted in terms of protecting UK employment and economic interests than measures such as those announced yesterday. Many of the cars purchased here are imports, the argument goes.
But scrappage incentives do address the demand issue by raising the level of the market (okay, with an inevitable bias towards small cars). The whole supply/value chain gets some relief - even the rather overlooked retail side of the industry benefits from more throughput. And there's also the added green gloss to the policy.
There's a psychological boost to: it gets people everywhere - and the media - talking about the scheme and the mere possibility of buying a new car, what's available in the market and so on. That might be especially welcome in the current depressed climate.
The Germans are doing it and the initial reaction there has been good. It would perhaps be wise to not rule out something similar here.
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