Print VersionScrappage extended
Scrappage extended until the end of March, but what’s next for the UK auto industry?January 2010
Robert Kingdom, head of marketing and business development at Masterlease looks at vehicle landscape.
Rather like a Lottery roll-over, another 70,000 drivers look set to benefit from the extension of the ‘scrappage’ scheme which is now scheduled to run until the end of March.
Commentators are still divided on its success. Exactly how many of the estimated 450,000 new cars that will have been sold under this initiative since May last year have been genuinely incremental may never be known, although it will have been a sizeable proportion. Whilst many of the cars sold will have been built outside the UK the impact on businesses and jobs throughout the country’s motor industry distribution and supply chain has been significant.
Although not perfect, the scheme has been largely ‘self-funding’ – due to increased VAT receipts from the sale of new cars – and is one Government initiative that does seem to have met its objectives. Add to this some minor environmental benefits – at least in terms of local air quality – and the scheme could be considered successful.
So what next for the UK motor industry? With the UK only just edging out of recession in the fourth quarter of 2009, there are mixed signs for economic growth. The housing market continues to show signs of a modest upturn, and business confidence is improving. But does this suggest an immediate recovery in new car sales?
The weakness of Sterling led many manufacturers to increase list prices throughout 2009, VAT has reverted to 17.5% and credit remains restricted. The new ‘showroom tax’ – affecting new cars registered from April this year – will push prices up for higher-emitting vehicles and this could restrict the recent successes of the 4x4 market. On top of all of that, any business-led recovery is unlikely to begin until unemployment starts to fall.
The Society of Motor Manufacturers and Traders (SMMT) forecast of 1.78 million registrations in 2010, including 110,000 through scrappage, suggests stagnation in underlying demand, excluding the effects of this scheme. And yet manufacturers are starting to talk again about sales growth in 2010.
One has to question from where the demand will come to meet all of the manufacturers’ sales objectives. The industry has shown genuine resilience during 2009. There has been real co-operation between manufacturers and employees – with initiatives such as short-time working or temporary factory closures – which has seen jobs and facilities preserved. But capacity continues to outstrip demand and ultimately something must give.
It looks like a very uncertain market and my fear is that manufacturers will revert to tactical, short-cycle markets to meet inflated sales targets, with the resultant negative impact on the used car market later this year or early into 2011. We have already seen a handful of manufacturers announcing plans to re-enter or increase sales in the daily rental segment, for example. Businesses simply cannot plan effectively against continued volatility in the used car market. There has to be a longer-term strategy above and beyond the roll over lottery of scrappage.
