Examining The “Scrappage Scheme”

Is offering £2,000 discounts to owners of cars ten years old or more who trade them in for new models a “scheme” or a brilliant idea?

You know how they couch financial news these days: “Sure, it’s bad, but it’s not slipping quite as fast as it has been.”

That appears to be the case according to a report by the Society of Motor Manufacturers and Traders. Sure, sales in the UK fell by 15.7 per cent to 176,264 units, but the decline was the smallest since July 2008.

Evidently, the word “scheme” does not have the negative connotation in the U.K. that it does here in the United States, because the Brits are quite optimistic about the strategy (if you will), which accounted for about ten per cent of the market in June and was credited yesterday for at least slowing down the slump in new car registrations.

The cost of the program is split equally between the Government and the auto manufacturers, and so far it seems to be favoring small cars made by Ford (4,299 units) and Hyundai (4,664). However, premium manufacturers such as Jaguar and Land Rover - with 66 registrations between them - are also benefiting.

The trickle-down effect to the premium sector has come as a “pleasant surprise”, the SMMT said yesterday. “We envisaged that the scrappage scheme would add to sales of lower-value, smaller-engined cars but it now seems that it is restoring consumer confidence generally,” a spokesman added.

Interestingly, the UK scrappage scheme is less generous and came later than the incentives bankrolled by other major European countries. In Germany, for instance, where eight-year-old cars qualify for the discounts, June sales were up 40 per cent on 2008.

Land Rover, heavily affected by the shift in the market away from big off-roaders, sold 2,105 vehicles last month, a fall of 28 per cent compared with the same month last year. Sure, sales for the first six months were 39 per cent down at 13,392, but that was beginning to retreat from a three-year run of record sales at this stage of 2008.

Sure, but…