Friday, 24 April 2009

Cash for Clunkers Car Scrappage Incentive Schemes

Cash for Clunkers Car Scrappage Incentive Schemes

The UK government has confirmed that a £2000 car scrappage scheme will come into operation as part of the budget announced on April 22nd 2009. What this means is that owners of cars that are over ten years old will be able to obtain a subsidy of £2000 towards the purchase of a new car in a move designed to boost car sales and assist the car industry whilst also providing benefits to the environment by reducing the number of old and fuel inefficient cars on the road. Usually the old car will have to be scrapped completely for the car scrappage rules to apply, i.e. the idea being that paying for you to scrap your car in this way will remove an old inefficient car from the roads, thus reducing the overall carbon footprint of our rolling stock of cars. Stephen Sklaroff, director general of the Finance and Leasing Association said: "The success of the car scrappage scheme relies on motorists being able to replace their old cars. For that to work, the finance needs to be available.

The AA praised the announcement, saying drivers would be pleased with a "generous scheme". AA president Edmund King said: "Drivers will be delighted that a generous scrappage scheme has been given the green light. Scrappage Incentive Schemes are already in place in many countries in Europe and have seen consumer confidence begin to return to the car buying market." In Germany in February, a Scrappage Incentive Scheme delivered an increase in new car sales of 21 per cent.

Car scrappage incentive schemes are certainly more targeted than generic loosening of credit availability. In the UK however doubts have been expressed as to whether customers could, and would, commit themselves to a large purchase in the current economic climate.

The government has been reluctant to introduce a scheme at a time when its finances are being stretched by a series of economic stimulus packages. However, Chancellor Alistair Darling has been under pressure for months to introduce the incentive, which is designed to stimulate new car sales. The Scrappage Incentive Schemes would not only would kick start the car manufacturers sales but would also in turn secure many employees jobs in the automotive sector, both in manufacturing but also in sales. According to official figures from the Society of Motor Traders and Manufacturers (SMMT) 313,912 new vehicles were registered in March 2009 - a fall of 30.5% compared with March 2008's figure. This is also partly due to vehicle companies cutting back drastically on production, just 59,777 cars were made in February 2009. But also car sales fell by almost a third in March this year compared with last year.

Although on the flip side, some 600,000 of the 800,000 motor industry employees are in the sector that maintains vehicles already on the road; they are more likely to be disadvantaged by a scrappage programme; as a wave of consumers would swap their older, high-maintenance vehicles for modern cars.

But car scrappage schemes are seen as targeting the root cause of the industry's woes - a lack of demand for products. They also, the government argues, help the environment by replacing old, inefficient vehicles with cleaner, more efficient ones.

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