I received this blog comment from an industry insider who prefers to remain anonymous. It has some interesting thoughts on the new scrappage scheme, so I thought it worth publishing to see what you thought.
The blogger writes: Government is known for its skills of obfuscation in benefit programme design. And has achieved significant ‘budget savings’ by making benefits difficult to claim.
Yet those finely honed Treasury skills have not been brought to bear on the so-called ‘scrappage premiums’ – handouts, of our money, of £1000 or so for scrapping a car which is more than 10 years old.
Remember, the car manufacturer is expected to handle the administration. And doubtless security, due diligence, fraud and risk implications too – and we have not yet seen the fine print for anybody transgressing – but it’s a good way to claw back inconvenient expenditure.
The automotive industry might not be in meltdown – yet – but that’s no thanks to government.
How many insiders felt deep down that any help offered to the motor trade would be just a matter of ticking the box and, when it fails, the motor trade can be blamed? Some might claim the car scrappage scheme is as realistic as the Budget.
The scheme follows those announced in Europe. Germany has offered an eyewatering €2,500 per nine year old unit scrapped against a new car or used car up to a year old. Originally planned for 600,000 scrappings, the scheme is so successful the time period has been extended and the count hiked to 900,000 units. That’s commitment. It will cost a lot but it shows positive thinking even if it does suck in a lot of imports; apparently a wide range of car owners are taking advantage.
France, on the other hand, has offered a much smaller incentive of €1,000 with CO2 strings attached – and the scheme is bumbling along gently without huge interest or excitement.
Britain has offered something close to the French amount. The fly on the wall would say it’s highly unlikely to utilise the full £300 million or so allocated to it – so there could be a longer term saving on the scheme.
Never mind the politics, what about the realpolitik of the marketplace?
Given that the thankful recipients of this largesse with our borrowings will have to raise the difference between the £2000 and the price of the new car, where will they get that money?
I would suggest those who would find a £1,000 bonus attractive may be three groups;
Pensioners who have kept a reliable runabout for years and to whom an update into a small, relatively inexpensive car would be attractive.
Families where the youngsters of better off households can persuade parents to upgrade the old banger with all that free help. Cool for uni – or the sixth form college car park.
The undeserving poor the necessity drivers of old bangers – service workers; agriculture workers; those who work anti social hours.
Without seeking any generalisation, a lot of 10 year old car and light van buyers could well today be classified as ‘sub prime borrowers’. And may well be imprudent if they were to swap their banger for a new or very nearly new car. Isn’t that group one a socialist government should be seeking to help with a genuine once in a lifetime helping hand?
Surely a little Treasury imagination – a little thinking outside the political tick-box might have been used to determine who might genuinely achieve a disproportionate benefit from the limited funds available? Encourage those nouveau ‘undeserving poor’ to move from a 10 year old car to a five year old one. Make it so dealers take the business rather than private to private – and cash flows would roll again – and it’s cash flows we want.
Two problems with the qualitative approach.
Firstly, the box would not be ticked for new car sales – even if 80% are imports.
Secondly – those forgotten buyers might still not have enough money to be able to buy the five year old car of their dreams. Well – we, the government own a couple of banks. Couldn’t those people with vouchers take them to one of our branch offices and borrow a small amount under prudent personal commercial terms to able to buy the used car of their dreams? The satisfaction created could be enormous – and the cash flows would start again – and that’s what we want.
It’s ironic the former Chancellor – our Prime Minister – and his understudy are both Scottish. Adam Smith, philosopher, economist and author and Brown were both born in Kirkcaldy. One wrote ‘Wealth of the Nations’….have we come full circle?
I don’t think the classical Scottish economists wrote about the motor trade and I’m not totally sure the Treasury realise that in the UK we sell three times as many used cars as new. And this year the value of used car sales is likely to be higher than new car sales..
If I were a cynic, I would claim this whole exercise is a brilliant strategic plan. Such financial largesse might, and I stress only might, be seen as a bargain basement for the middle classes – the disillusioned core of New Labour…and aren’t they the voters most likely to defect?
Enjoy your new small car.
Commentary on car scrappage scheme
