As the scrappage scheme draws to a
close in Britain, is there any hope for its continuation?
With Britain’s £300 million car scrappage
cash pot expected to run dry as early as the start of October,
dealers have been struck with dismay by Lord Mandelson’s reported
refusal to extend the scheme – especially following France’s
decision to extend its own programme into 2010 and beyond.
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According to the SMMT, some 102,071 cars have been
registered under the UK scrappage scheme since its inception on May
18, and August alone saw 16,848 scrappage sales – a quarter of the
month’s total. The contribution was significant, driving sales up
by 6 percent year on year, and building on July’s tentative
increase of 2.4 percent.
That being said, the wildly successful German
scrappage scheme was shut down this month, despite having boosted
August’s car sales by 28 percent year-on-year.
The brevity of the German programme has, however,
been offset by its scale. After prompting 10-year highs in car
sales during the year’s first quarter, available funds were boosted
from €1.5 billion (£1.3 billion) to a gargantuan €5 billion,
playing a significant part in Germany’s emergence from
recession.
One reason for the end of the boom in Germany has
been the scheme’s expense to the government, which provided €2,500
towards new cars bought by consumers scrapping vehicles of more
than nine years of age.
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By GlobalDataBut unlike the highly generous German and American
programmes (the latter of which burnt through $3 billion in a
matter of weeks), the UK scrappage scheme is understood to be
self-funding, largely due to current VAT conditions.
So why is it set to end when the current allocation
of cash runs out?
Sales aid
Crucially for the fate of UK scrappage,
the British scheme has been much more focused on retail stimulus
than Germany’s, which was aimed largely at the country’s critically
important domestic manufacturing base.
After all, the most significant winners under UK
scrappage have not been British cars but cheap imports – Hyundai,
for example, overtook both Ford and Vauxhall in August’s retail
figures to achieve a dramatic 323 percent year-on-year sales boost
and a record 5.6 percent market share.
September, too, is likely to bring more heartening
news for Hyundai, Kia and other imports, as motorists flock to
register under new ‘59’ plates.
Even if this support of dealerships rather than
manufacturers is not seen as a priority by the government, the
situation when the money runs out – especially when VAT returns to
17.5 percent in January – may call for a rethink.
The Retail Motor Industry Federation (RMIF) is
“bitterly disappointed” that Lord Mandelson has declined to extend
the scrappage scheme, the association said.
Paul Williams, chairman of the RMIF’s National
Franchised Dealers Association, said that industry representatives
are still waiting for confirmation of a meeting with the government
to discuss its future, holding out the slim hope that the scheme
may yet be extended. But how helpful is scrappage to motor finance
providers?
Finance impact
Finance & Leasing Association (FLA)
figures for July show that the speed of contraction in new car
point-of-sale finance volumes over the month was at its slowest
rate (4 percent down compared with July 2008) since the start of
this year, “most likely the result of competition in the motor
finance sector,” the FLA said, adding that the scrappage scheme
“appears to have had limited impact on dealer-financed sales of
cars”.
Geraldine Kilkelly, head of research and chief
economist at the FLA, said: “The slight improvement in motor
finance volumes in July may in part reflect the impact of the car
scrappage scheme. But there is no evidence that scrappage accounted
for more than a small number of finance deals on mostly smaller
cars.
“Motor finance companies still need a long-term and
sustainable market for affordable wholesale funds. Otherwise, with
or without the scrappage scheme incentive, it will be difficult for
the industry to continue to offer good motor finance deals in
response to rising demand.”
At the recent Motor Finance round table
(see supplement with this issue), David Betteley, senior
VP at Toyota Financial Services, said that in the UK, the captive
achieved general new car finance penetration rates of over 50
percent – but that for scrappage scheme customers, the equivalent
rate was just 27 percent.
And with cars bought through the scheme tending to
be smaller and cheaper in any case, this means the profits flowing
to financiers as a consequence of scrappage may be lower than
anticipated.
Meanwhile, Dennis Foley, joint MD of GMAC, is in
favour of keeping the scheme running. “It would definitely be a
good idea for the government to keep the scheme going – there’s no
mistaking the impact it has had on sales.
“As well as this, we have also seen an advantage
from selling related products such as GAP insurance through
dealerships.
“For finance providers in general, the scrappage
scheme has provided incremental sales volume increase, and has
bought customers into dealerships who would not have been in the
market otherwise,” he commented.
Graham Wheeler, managing director of Volkswagen
Financial Services UK, said residual values for the captive’s fleet
were unlikely to be affected by the fallout from the scrappage
scheme, some years in the future.
“Considering that most of our customers are likely
to hold onto their scrappage buys for longer than three years, we
don’t foresee a great impact on residual values,” he said.
“It would not surprise me if there will be more of
an effect on RVs for manufacturers who have seen giant leaps in
sales volumes due to the scheme.”
