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With the government’s scrappage incentive due to expire at the end of the month, UK car distributors are predicting new vehicle sales will fall by as much as 10% this year to between 1.7 and 1.8m.

As well as the end of scrappage, there are other issues which could come into play such as new showroom (first registration) taxes starting on 1 April, the possibility of a new government being elected around May and a rumoured hike in VAT (value-added tax) to 20%. This has recently returned to 17.5% after being dropped to 15% during the credit crunch.

A rise in VAT is the biggest concern, with top automaker executives at the Geneva show saying such a move could be “disastrous” for business.

New showroom taxes will hit high emission vehicles hardest but additional VAT will hit all big ticket items.

While they have to wait and see what the future holds, car industry chiefs are for now focusing on the ending of the scrappage incentive and looking at other ways of boosting sales.

Some are to offer their own version of scrappage, offering big discounts or trade-ins on old vehicles – fast becoming known as swappage.

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By GlobalData

Peugeot UK MD Jon Goodman does not plan to head down the swappage route and is relying instead on some key new products being introduced following the re-branding at the beginning of the year.

He said: “We have made a storming start to 2010 with sales up year on year. We have got good offers available through our dealers and great new vehicles in the 3008 and 5008 [five- and seven-seat MPVs].

“I don’t think it’s sensible to speculate over increases in sales tax. It might make things tough in the second half of the year but it is not impossible to adapt.”

He added that Peugeot is making a big investment to win more fleet business. “We have taken on nine new people in our fleet department so that we can get in front of more customers.”

Fleet business is one reason why Ford of Britain managing director Nigel Sharp is optimistic. “Fleet managers have been extending leases in the current economic climate but they can only do that for so long. They will have to refresh their fleets before they lose out on residual values.

“Light commercial vehicle sales remain a disappointment and overall we are expecting sales to fall around 10% this year from 300,000 vehicles in 2009.

“The important thing is that Ford and its dealers make money so we have got to ensure that we keep good control over vehicle stocks.”

Kia managing director Michael Cole said: “We are still deciding what to do post scrappage but have made no firm decisions as yet. As far as VAT is concerned, I think the market accepted a return to 17.5% at the beginning of the year because it was what people had been previously used to.

“A move to 20% would be potentially damaging. Car buyers are going to have to come to terms with that because it is going add quite a bit to the price of vehicles.”