Extend banger deal, say car firms

Published on Friday 25 September 2009 21:28

CALLS for an extension to the government's "cash for bangers" scheme became more urgent yesterday as fresh car production figures revealed a 31.5 per cent slump in August.

Industry groups warned the government that the motor industry remained "extremely fragile" and pressed for an immediate extension to the 300 million scheme, which gives buyers a discount of 2,000 off the price of a new car when they trade in a vehicle which is at least ten years old.

Since its introduction in this year's Budget, the UK scrappage scheme, as well as similar incentives in Europe, have provided a much-needed boost to the beleaguered car industry, with several manufacturers including Toyota rehiring staff at their UK plants to meet demand.

Hopes of a recovery were sparked in July when UK car production fell at its slowest rate for ten months.

But yesterday's figures, which bring the overall decline this year to 44.6 per cent, re-ignited concerns over the industry's medium-term prospects. It is feared car manufacturers will be plunged straight back into crisis unless an extension can be agreed.

Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, which published the figures said: "The scrappage incentive scheme has had a positive impact on car production, with one in three cars built in the UK last month for the home market and total volumes starting to stabilise.

"However, underlying demand remains weak and the recovery is still extremely fragile. A continuation of the scrappage incentive scheme through to the original close date of 28 February, 2010 would help to sustain growth and bridge uncertainties associated with the ending of VAT discount."

The government set a closing date of 28 February for the scheme unless the 300m set aside by Business Secretary Peter Mandelson ran out before that date.

Demand has been so strong that industry experts warned yesterday the scheme is likely to terminate next week.

David Raistrick, UK manufacturing leader at Deloitte, said: "This is the wrong time for the industry to lose the support of scrappage which has boosted car registration figures and helped production figures.

"An extension to June 2010 or a further contribution of 300m from the government would help to further stabilise the automotive sector which is recovering gradually.

"Further support from scrappage will stimulate demand for new cars which will improve the industry's chances of a more long-lasting recovery."

Industry groups such as the Scottish Motor Trade Association argue that the scheme is cost neutral as the Treasury recoups what it hands out in subsidies from VAT receipts on car new sales.