Dealer price guide publisher Glass’s on Tuesday said the UK government should extend the scrappage scheme until next summer at least in order to avoid a “very significant” fall in new car sales and a consequent collapse in revenues for car manufacturers and retailers.
Scheme registrations currently run at about 13,500 per week and estimates suggest government funding could run out as early as October, well before the earliest forecast rise in consumer confidence. The immediate outcome, Glass’s said, would be to plunge new car orders to levels seen in the fourth quarter of 2008, with little prospect of an improvement until well into 2010.
The firm highlighted the return in January of the 17.5% VAT (sales tax) rate, from the current credit crisis induced temporary 15%, as a key factor likely to dampen spending on unsubsidised new cars. Growing public awareness of price rises averaging 7% so far this year won’t help.
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GlassGuide managing editor Adrian Rushmore said: “Consumer confidence will continue to be at a low ebb at least until next summer, and without the contribution of scrappage sales, the new car market will rapidly fall to the levels seen during the last recession, when around 1.6m cars were sold each year.”
The profitability of scrappage sales for dealers and manufacturers should not be underestimated. “Retail sales generated through the scheme often provide a better margin of profit than sales to corporate fleets. Its absence would, therefore, be felt in two ways: a loss of sales, and a loss of the most profitable sales.”
Dealers throughout the UK want the scheme’s timeframe extended and the definition of a 10 year old car to be widened to cover vehicles registered on or before 28 February 2000 (V registration plate prefix).
Glass’s also reckons there’s a strong case for the scheme to apply to vehicles that have no MOT (annual government safety/smog check) provided they meet the age criteria. Many dealers are also asking for the VAT increase to be deferred until later in 2010.
“A continuation of the scheme can be a win-win for all parties,” Rushmore said. “The government’s existing contribution of GBP300m is offset by the additional VAT revenues accrued, so extending the scheme need not hit the public purse. Meanwhile, the new car market would gain vital support until the beginning of a wider economic recovery, rather than being returned to the perilous position of late 2008.”
