(Thu 23 Apr 09)

As expected, many interested parties have stepped forward to give their opinions on Chancellor Alistair Darling's Budget speech, and in particular the announcement that the Government is to introduce a new scrappage scheme to persuade owners of old cars to trade them in for new ones.

Although a lot of conversations are going on this week to establish the finer details of the scrappage incentive, several manufacturers have already voiced their support for it. BMW has confirmed that it will contribute its £1000 share of the total £2000 being offered for an car to anyone eligible who buys a new model from its own-brand or MINI ranges, Toyota says that it will do so in the case of the Auris (though it has yet to confirm a similar arrangement for other models), Volvo says it is "delighted to confirm its intention to participate" in the scheme and Renault is similarly "looking forward to taking part".

In fact Renault says it is planning to contribute more than the standard £1000. Full details have yet to be announced, but the intention is to include at least the Twingo, Clio, Kangoo and Megane ranges.

Ford has gone a step further still by giving some details of its proposed "Scrappage Plus" deal which is intended to attract new buyers to larger cars. Ford will give incentives of £1250 for the Fusion, £2500 for the Mondeo and £3000 for the Galaxy in addition to the combined £2000 being supplied by Ford and the Government.

This is likely to help shift a lot of metal, but Ford of Britain's Managing Director Nigel Sharp isn't expecting it to lead to record figures. "Although very welcome, the extra sales we expect from this new scheme will only bring a depleted automotive market back up to levels of 15 years ago at best," he says, "so our sector still faces tough challenges."

Nissan, meanwhile, intends to stick with the £2000 arrangement but extend it (without Government support) to cars that are just eight years old, or two years younger than the ones covered by the official scheme. This deal applies specifically to purchases of new cars built at Nissan's award-winning Sunderland plant, namely the Micra, Note and Qashqai.

Questions are still being raised about the scheme in other quarters, though. Stephen Sklaroff, Director General of the Finance & Leasing Association, makes the point that "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. We need Government support now, to ensure motor finance companies can meet that demand."

The British Vehicle Rental and Leasing Association is critical of the 2p increase in fuel duty scheduled for September. The government is happy to bail out the manufacturers and bankers who make vehicles and lend you the money to buy them," says BVRLA Chief Executive John Lewis, "but it takes perverse pleasure in punishing anyone who actually wants to use one and help contribute to the UK economy.

"Coming just weeks after a previous 1.84p per litre rise in fuel duty, this announcement will increase the financial burden on millions of businesses for whom road transport is an essential tool, not a discretionary luxury."

Lewis is also unhappy about the scrappage scheme on the basis that it may harm the used car sector. "The Government seems to have ignored the close link between the new and used vehicle markets," he says. "A scheme including newer, more fuel-efficient, pre-owned vehicles would have seen buyers trading-up through the used market and eventually feeding through to new car showrooms. By focusing its £300 million scrappage fund on new cars alone, the scheme is likely to stifle the recent recovery seen in used car prices as buyers rush to showrooms to enquire about cars they probably cannot afford."

However, Adrian Rushmore, Managing Editor of Glass's, has a completely different view, and gives several reasons for it. "The majority of consumers already interested in purchasing a nearly-new car will not be existing owners of cars 10 years or older, and will therefore not be eligible for the scrappage bonus.  For this reason demand will not switch from late-plate to new vehicles, harming late-plate values.

"Most of the vehicle manufacturers' share of the £2000 scrappage bonus is already on offer to potential car buyers in the form of sales discounts and incentives.  The manufacturers' scrappage bonus will largely replace these incentives, not supplement them, and today's used car values already take full account of current low transaction prices on new cars.

"The scrappage scheme is likely to increase demand for new city cars and superminis more than any other type of car.  Many of these cars are already in limited supply, and the expected additional demand will merely serve to extend delivery lead times. Customers not eligible for the scheme will also find themselves joining lengthening queues, and are therefore more likely to consider a late-used alternative.

"In addition, manufacturers may also seize the opportunity to increase list prices on those models in the highest demand.  These factors will conspire to support – or possibly even promote – prices for the nearly-new small and lower-medium car."

CAP is thinking along similar lines, though its official position is that residual values are likely to be harmed in the case of "late used" cheap, small cars, since the brand new versions will be the ones most likely to be involved in scrappage incentive deals. That might be contradicted by the Ford, Renault and to some extent Nissan situations mentioned earlier, but CAP also believes - and is not alone in doing so - that people who own cars or vans more than ten years old, and are therefore most likely to be eligible for the scheme, are also the least likely to be able to raise the finance to take advantage of it.

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