Car sales improve thanks to scrappage scheme

The improvement in car sales last month, which saw new registrations fall by 15.7 per cent - the smallest drop for almost a year - is being put down to the government's scrappage scheme, which offers cash for old cars.

Around 176,000 new cars were sold in the month, compared to 209,000 last year, according to the Society of Motor Manufacturers and Traders (SMMT). The drop is the best monthly result since last July and is a marked improvement on the average, with 17,014 customers opting to trade in their old car for a new model. Under the scheme car-owners receive £2,000 off their new vehicle for scrapping a 10-year-old car.

Paul Everitt of the SMMT said: "We are now beginning to see the positive impact of the scrappage scheme. We expect the pace of improvement to increase in the coming months. We can already see the industry making steady progress on the long road to recovery.”

But there is no little controversy surrounding the scheme, with critics pointing out that most of the money is going to foreign manufacturers. Korean makers Hyundai and Kia saw the highest sales last month and the proportion due to scrappage, at 15.7 per cent and 9.4 per cent respectively, were among the highest in the market.

There are also fears that the scheme could end up being a victim of its own success. It has been so successful that government funding of £300m is likely to run out in October, six months ahead of schedule, which could lead to a renewed slump in car purchases.

WHAT THEY ARE SAYING: Howard Archer, chief UK economist at IHS Global Insight, in the Independent: "There is a significant danger that increased spending by consumers on vehicles will come at the expense of spending on other big-ticket items at least."

Damian Reece in the Daily Telegraph: "After only one full month of the scheme in action it is too early to write it off. It would have been odd not to introduce such a scheme given the success similar initiatives have had in other European markets, markets that suck in exports from UK factories. We can't judge the UK scheme in isolation. Only when we see the car production figures
from UK factories at the end of July can we really say whether
scrappage schemes in general have worked. Judging by the re-hiring of workers at several plants here I suspect the answer will be that they've been a qualified success." ·