Is the proposed car scrappage scheme trying to do too many things to be effective?

A scheme that so far raises more questions than answers might even encourage buyers to wait for incentives rather than buying now

Boris Johnson
The Prime Minister is expected to announce a new scrappage scheme on July 6 aimed at helping recovery in the automotive industry while promoting take-up of zero-emissions cars

Drink to the groundhog, the Government is proposing a car scrappage scheme, although which part of Government is doing the proposing here is the subject of some debate, since the weekend’s leaked stories were all bylined by political editors rather than industry or transport editors…

It’s been 10 years since the last one, when Alistair Darling, then Chancellor of the Exchequer, introduced £400 million’s worth of scrappage incentives worth £2,000 towards the purchase of a new car; half paid by the government, half by the motor industry.

Then and now, the UK schemes were aimed at helping the motor industry recover from a deep recession and echoed similar incentives in Germany and France (and America’s ‘cash for clunkers’ initiative).

“There’s a lot of different industries looking for special assistance as we come out of the Covid crisis,” says David Leggett, automotive editor at data and analytics specialist GlobalData. “The Government will be juggling those different claims and looking at what gets the best bang for its buck in getting the auto industry up and running without giving a flat subsidy to car buyers.”

A decade ago, the scrappage scheme didn’t really please anybody, although it was claimed to have encouraged sales of 400,000 new vehicles even if a significant proportion of these were later deemed ‘pull-forward’ sales which would have taken place anyway.

Alistair Darling (left) introduced the previous scrappage scheme in 2009 while Gordon Brown's Chancellor - while car sales received a boost, it didn't really please anybody Credit: Peter Macdiarmid/Getty Images

There were howls of protest from environmental groups claiming the incentives didn’t prioritise low-emissions technology, from trades unions claiming they didn’t preserve UK jobs, from car enthusiasts claiming the scheme resulted in the destruction of important classic cars and from the motor industry claiming it didn’t actually help UK manufacturers, just makers of small, cheap cars.

And while an official Government announcement on this year’s proposed scrappage scheme is almost a month away, it might garner a similar reception.

The idea mooted at the weekend was a grant of up to £6,000 towards the price of a new battery-electric car when a qualifying older car was scrapped. According to reports, the thinking is that Britain’s biggest car makers - Nissan, Jaguar Land Rover and BMW’s Mini marque - have electric cars at the heart of their manufacturing strategies.

Although the scheme may ostensibly be aimed at helping UK manufacturers, such as Jaguar with its battery-electric I-Pace, that car is actually produced in Austria

This is only partly true. Only the battery-powered Mini Cooper SE and Nissan Leaf are built in the UK (the Jaguar I-Pace is made in Graz, Austria) and all these battery-electric models are a small proportion of the total vehicles sold by each of those makers in the UK. The UK car industry also consists of Toyota, which produces hybrid vehicles, and Britain’s luxury car makes such as McLaren, Aston Martin, Bentley, Rolls-Royce and others which are suffering badly, but sell mainly conventionally-powered cars with petrol and diesel engines.

Several car makers we spoke to suspect some skulduggery in the leaked letter from the Society of Motor Manufacturers and Traders (SMMT) to the Government in the Guardian this week, which quoted the SMMT saying that any such scheme “must support the entire market, not just disproportionately favoring specific segments or technologies, recognising the diverse nature of UK automotive manufacturing”.

Mike Hawes, the SMMT chief executive, reacted to the leak with a statement reaffirming UK car makers’ commitment to net zero carbon, but saying “long-term ambition, however, must not be confused with the short-term need to restart the sector and secure its very survival… To reboot British manufacturing and safeguard the thousands of jobs on which it depends, we would need measures that support the entire market, reflecting the diversity of UK automotive manufacturing”.

Mike Hawes, the chief executive of the SMMT trade body, says "must support the entire market, not just disproportionately favoring specific segments or technologies"

It's here that the traditional splits in UK car making start to the raise their head, with specialist luxury car makers such as JLR calling for blanket help to preserve jobs and get back into production, pitted against mass producers keen that the industry is seen as getting help for environmental endeavour as well as to get them back on their feet.

“We can’t just expect help to produce big diesel- and petrol-engined cars,” said one car maker, “people will just laugh at us.”

No one, however, is supporting an exclusive subsidy for battery-electric vehicles.

Ford’s reaction to the news was guarded, but clear: “The auto industry is such a significant contributor to the UK’s economy and the impact on demand likely to be so severe as a result of the pandemic that some form of stimulus will probably be needed,” it said in a statement.

British luxury marques such as Rolls-Royce, together with Bentley and Aston Martin and the UK's performance car manufacturers, do not yet produce electric cars and would therefore not benefit from a scrappage incentive Credit:  Christopher Pledger

“While the actual mechanism is still up for discussion, it is vital that any scheme is wide ranging and not fixated on any single technology if it is to have the maximum benefit in safeguarding jobs in the auto industry, a tangible positive impact on the environment, and a substantial return in tax revenue to the government. The right scheme at the right time can act as a meaningful engine for the entire economy.”

A senior motor industry executive put his view of the battery-electric subsidy more bluntly: “We don’t want a scheme that just helps two or three per cent of the market.”

Apart from the limited number of battery cars on sale in the UK, the high price of those cars and the shortages of supply, there’s also an uneasy feeling that yet more subsidies for battery-electric cars is a free boost to the wealthy middle classes without much in the way of a CO2 benefit.

Even cheaper electric cars such as the new Mini SE are still significantly more expensive than conventionally powered models

Bigger car makers are suggesting a partial solution might be an immediate subsidy to hybrid and particularly plug-in hybrid cars, which are now flooding on to the market.

As one industry executive explained: “Plug-in hybrids are a gateway to full electric vehicles and they’ve also got a much wider market appeal, so the CO2 savings are going to be much greater.”

Timing is crucial here, as GlobalData’s Leggett explains: “The Government must not waste time or people will just defer purchasing, which will make things worse – Berlin and Paris didn’t hang around.”

There are some who suggest that the industry will experience something of a false summer when it returns to full operation as deferred purchases in the lockdown, pent-up demand and delayed Personal Contract Purchase (PCP) scheme renewals rush through the system, but that won’t last long.

“With the dealers back [in action] there will be a sales blip,” said one mass-market manufacturer, “but that will almost certainly tail out in the autumn. Germany, which doesn’t have the same proportion of PCP sales as the UK, is experiencing just 50 per cent of the showroom footfall it had before Covid lockdown.”

Although car showrooms reopened on June 1 with full social distancing in place, the industry anticipates only a temporary fillip before sales tail off again Credit: David Rose

Apart from the timing and the industry concerns that Government ministers simply don’t understand the different CO2 saving technologies or the long-term decisions that the motor industry has to make, there are concerns about the unintended consequences of market subsidies. Ten years ago, the scrappage scheme immediately boosted the value of any qualifying car in whatever condition, and valuable classic cars were crushed.

Either way the Government will not be putting quite as much into the deal as the headlines suggest, since VAT and VED (road tax) on new-car sales will help it claw back some of the subsidy costs.

But, however, this news did get out, we’ve now got a month of speculation before we know whether there will even be a scrappage incentive scheme, never mind what type it is. 

It would be a brave buyer who ploughed on with a new car deal in the intervening period, which is exactly the kind of self-fulfilling prophecy that the industry was anxious to avoid…

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