Mandelson urged to extend scrappage scheme

The motor industry today urged Business Secretary Lord Mandelson to extend the Government's car scrappage scheme to avoid a collapse in sales at the end of this year.

The scheme, under which motorists can get a discount of up to £2,000 on a new car when trading in a 10-year-old banger, is due to end when £300 million support provided by the Government is spent.

The Society of Motor Manufacturers and Traders believes the money will run out around the end of October and today urged Lord Mandelson to deliver more funds to keep the scheme going until February next year.

They said the scheme, launched in May, has successfully reignited demand, protecting thousands of jobs which were under threat because of falling sales in the recession.

After 15 consecutive months of decline in the new car market, the scrappage scheme was credited for luring buyers back into the showrooms in July and August, with more than 200,000 orders taken.

The loss of the incentive will place additional pressure on dealers already facing a 2.5 per cent hike in VAT at the end of December and the introduction of a first-year tax disc rate of up to £950 on new cars from April, said the SMMT.

"Consumer confidence is still weak and recovery remains extremely fragile," said SMMT chief executive Paul Everitt.

"Avoiding a relapse in demand is critical to the UK economy and an extension to the scrappage incentive scheme, which has already proven its credentials as a cost-effective support mechanism, will ensure a more stable outlook for vehicle demand."

Representatives of the SMMT met Lord Mandelson this morning to discuss the scheme, before making their call for an extension in a letter to the Business Secretary.

Industry sources estimate that 70 per cent of the drivers taking advantage of the scrappage scheme would not otherwise have bought a new car in 2009.

The extra sales have helped the new car market hit an estimated 1.85 million units this year - well above pre-scrappage forecasts, but lower than the 2.47 million annual average in the five years before the recession began.

Some 20 per cent of cars registered were either built in the UK or have their engine produced here.

Ford recorded a 36.5 per cent increase in output at its Dagenham plant and 18.3 per cent at Bridgend in August, as the company introduced extra shifts to deal with demand from UK and European scrappage schemes. Meanwhile, Nissan said production in the UK of its Micra and Note models increased by 33,000 units due to the incentive.

Toyota is planning to return to a "workshare" arrangement of reduced hours and pay for workers in the UK in October, after suspending the measure while scrappage was in operation.

And scrappage has been good for the environment, with typical CO2 emissions of 131.8g/km for cars purchased under the scheme, compared to an estimated 181.9g/km for those taken off the roads, which were on average 12.6 years old, according to industry figures.

Overall, the SMMT estimates scrappage will save around 2.7 million tonnes of CO2.

The Government's subsidy of £1,000 - matched by the industry - for each car purchased has been largely covered by the 15 per cent VAT paid on new vehicles, said the industry body.

A Department for Business, Innovation and Skills spokeswoman said: "We recognise that there is growing pressure from across the sector for an extension of the Government's scrappage scheme.

"However, it was designed as a limited scheme to ensure its benefits are balanced with the needs of other areas of the car industry, such as the second-hand market, maintenance and repair businesses, and the wider economy."