Guide: Will a new scrappage scheme launch next month? And what could it look like?

Time 1 year ago

A brand new scrappage scheme maybe on the cards and it could launch as soon as next month.

The prime minister is believed to be announcing a series of new measures to kickstart the UK economy in a major speech in early July – and a new scrappage scheme could be one of them.

If it goes ahead, it’s believed the scheme will offer buyers up to £6,000 off the price of a brand new electric or hybrid car if they swap out of an older petrol or diesel one.

It should mirror the previous scrappage scheme introduced under Gordon Brown in 2009-10, which totalled £400m and gave buyers £2,000 off a new car if they scrapped a model aged 10 years or older with the government’s £1,000 matched by manufacturers.

Leading figures in the car industry have been crying out for a new scrappage scheme.

The SMMT recently wrote to the government calling for any new scheme to ‘support the entire market, not just disproportionately favouring specific segments or technologies, recognising the diverse nature of UK automotive manufacturing’.

Manufacturer bosses have been adding their voices too, including JLR boss Rawdon Glover and Alison Jones, Groupe PSA boss, who said delaying decision on a scrappage scheme would have a negative impact on new car demand.

And that all comes on the back of April’s new car sales being down by a record 97 per cent. May’s market was little better with registrations down 89 per cent year-on-year.

But the car market is very different today to how it was when the last scrappage scheme was introduced, when diesel sales were at an all-time high and the EV market was very much in its infancy.

Any new scrappage scheme is likely to take the form of an environmentally driven package, aimed at getting the most-polluting cars off the road.

Here’s what might happen…

What did we learn from the last scrappage scheme?

Back in 2009, when the true impact of the global financial crisis started to really hit the industry hard, the UK government announced that it would offer a ‘scrappage’ discount of £2,000 off a new car in exchange for any car over 10 years old.

The rules were that the car being scrapped had to be pre-1998 and to have belonged to the owner for a 12-month period in order to stop people from just buying up old bangers to take advantage of the scheme.

The £400m initiative was responsible for 390,000 new car registrations in a 10-month period and attracted buyers who didn’t fit the mould of the three-year rinse-and-repeat finance purchase, meaning the large majority of scrappage customers bought smaller, inexpensive vehicles – many hadn’t set foot in a dealership in over a decade.

But the stimulus package did what it needed to do for registrations and lifted the stagnation of sales.

Since then, many manufacturers have run their own scrappage programmes, with discounts co-funded between manufacturer and dealer to get buyers over the threshold. Indeed, scrappage has become a sales tool in its own right.

David Bailey, professor of business economics at the Birmingham Business School, told Car Dealer Magazine: ‘With dealers closed and economic activity taking a big hit, car sales are down dramatically, but what will happen when the lockdown ends? It’s difficult to say, and that depends on how quickly the economy bounces back.

‘At some point we may see some sort of incentive or scrappage scheme to encourage buyers back into the market – that would work best if governments across Europe did this too.’

How a scrappage scheme would work needs careful consideration.

It has to be finely balanced between taking the most-polluting cars off the road and replacing them with greener models. Indeed, Car Dealer reported on international research and strategy organisation ICDP’s call for an emissions-driven scrappage scheme to help the industry recover.

What could a new scrappage scheme for 2020 look like?

If the reports are to be believed, new car buyers will be offered up to £6,000 to trade in their older petrol or diesel car in for an electric or a hybrid car.

Whichever scheme gets the go-ahead, it’s unlikely to be as straightforward as the original £2,000 off a new car in exchange for your old one.

Instead, a package of measures to help owners of older cars replace them with newer, less-polluting vehicles could be launched, with scrappage incentives being graduated based on the type of car being bought with a scrappage grant.

One of the most reasoned ideas we’ve seen so far is a proposed ‘self-help’ scrappage scheme, which would need to run on a global rather than national basis, but would assist car manufacturers in reaching unrealistic emissions targets they were asked to meet by 2021.

Many carmakers have already budgeted for the inevitable substantial fines that would come on the back of targets put in place a decade ago amid forecasts of greater EV growth, many of which didn’t come from inside the car industry to start with. Industry analyst PA Consulting believes those fines could amount to around £12.6bn.

ICDP director Steve Young told Car Dealer: ‘It is in the interests of politicians, regulators, industry players, consumers and society as a whole if an approach could be found which delivers a market stimulus for the automotive sector and achieves the emissions reductions embedded in the current regulation at the same time.

‘If this can be done without any requirement for public funds, leaving these to be diverted to other sectors in crisis, then this would be an added bonus.’

The ICDP is proposing an adapted scrappage scheme which it says would allow manufacturers to deliver the same air-quality improvement called for by the 2020/2021 carbon dioxide regulations, while reducing their obligation to do so through the sales mix for this year.

Young explained: ‘It does so by applying credits for higher-emitting vehicles scrapped against the potential fine that would be applied if the sales mix was non-compliant.

‘There is therefore no requirement for government support for scrappage, but there would be fiscal and economic benefits through higher tax revenues and protected employment.’

The ICDP says manufacturers could fund the scrappage allowance with money they’d have otherwise spent on less focused marketing initiatives, and at rates they believed would motivate buyers.

The European Commission could then let the manufacturer claim a CO2 credit for a scrapped car, which would support economic recovery.

Another scenario is a series of more localised incentives, with the level of support graded based on the CO2 emissions of the car being bought, with greater incentives for electric cars or plug-in hybrids that are capable of zero-emission driving.

What timescale are we looking at?

Getting the car industry up and running will be fairly high up on the government’s economic recovery agenda, even though it may not seem so from where you’re reading this.

If Boris Johnson’s speech does outline a £6,000 new car scrappage scheme on July 6, it could be in place in a matter of weeks after the announcement, and be well up to speed for the September plate change.

Put bluntly, the sector employs more than 160,000 people directly through manufacturing, sales and marketing, plus a further 863,000 indirectly through support industries, used vehicle sales and the supply chain, who cumulatively contribute £18.6bn a year to the economy.

That’s a big chunk of the working population of the UK, and the government is currently footing 80 per cent of the salary bill for many of those companies, who have been forced to furlough their staff.

Jaguar Land Rover has called for an incentive to be put in place by July, but that depends on a number of external factors, not least an end to wholesale lockdown.

Outlining what any sales stimulus might look like and making it available ahead of the September plate change, though, will be critical if car sales in the last third of 2020 are to recover to any meaningful level as we pass through the traditionally quiet summer months.

Who will the target customers of any new scrappage programme be?

Until the UK is properly open for business again, it’s difficult to predict buyer behaviour or who will be in a position to buy a new car – something that is making forecasting frustrating and difficult across the industry.

Whereas the post-global financial crisis scrappage scheme was quite clear in that it focused largely on more mature customers with low debt levels and comfortable assets at a time when credit was severely restricted, the landscape this time is different.

Covid-19 came along at a time of steady, if erratic, economic growth, with credit generally easy to come by, and it’ll probably be at least a year before the full economic consequences of the pandemic are felt, whereas in 2009 the scheme came on the back of an economic collapse that had already happened.

Expect the words ‘bounce back’ to be as prevalent in the media during the last half of 2020 as ‘Brexit’ was in the same period of 2019 as we start to understand more.

Consumer behaviour has changed massively and suddenly, too.

As a result, some people are really struggling (not least the self-employed or those who work on basic-plus-commission), while others are receiving 80 per cent of a salary that they’re suddenly finding themselves spending a lot less of by not going out, not going on holiday, not buying fuel and only doing essential shopping.

These are the people who might fancy treating themselves to a new motor when we come through the tunnel, especially if their purchase is justified by an incentive scheme.

But nothing is crystal clear yet.

What are other countries doing?

There are calls across Europe and in other high-volume markets such as the USA, Canada and Japan for a post-pandemic buyer incentive programme, either on a global, regional or national level.

France’s president, Emmanuel Macron, has unveiled plans for new measures to support the French new car industry. Car buyers now get up to 12,000 euros (£10,669) from the government when buying a new electric car.

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Germany has followed a similar path by offering buyers a €6,000 (£5,370) discount for a pure EV – in addition to a manufacturer subsidy of €3,000 (£2,685) – and reformed the car tax system.

Our Advice section has plenty more guides to help get you through this crisis

This story was first published May 14, 2020

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Car Dealer has been covering the motor trade since 2008 as both a print and digital publication. In 2020 the title went fully digital and now provides daily motoring updates on this website for the car industry. A digital magazine is published once a month.

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