The Society of Motor Manufacturers and Traders (SMMT) has written to business secretary Lord Mandelson urging government to extend its scrappage incentive scheme which is close to running out of funds.
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“Consumer confidence is still weak and recovery remains extremely fragile,” said SMMT chief executive Paul Everitt.
“Avoiding a relapse in demand is critical to the UK economy and an extension to the scrappage incentive scheme, which has already proven its credentials as a cost-effective support mechanism, will ensure a more stable outlook for vehicle demand.”
SMMT says that over 100,000 new vehicles have been registered under the scrappage scheme with an order bank of a further 100,000 suggesting the scheme will run out of funding in late October/early November.
The trade body is calling on government to extend the scheme through to the original close date of the end of February 2010 and warns that it will be needed to counter the likely negative impacts of a return to the higher rate of VAT and the introduction of the first year VED rates.
SMMT maintains that the scrappage scheme is largely self-funding with the 15% VAT paid on a car bought for GBP7,650 covering the GP1,000 government contribution. It also says that some 70% of the cars bought under the scrappage scheme represent additional sales which would not otherwise have happened in 2009.
