Government's Car Scrappage Scheme
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The government has announced a scrappage scheme in its 2009 Budget. We look at what a scrappage scheme means and what it might mean for you.
What is scrappage?
The government's scrappage scheme – introduced in the 2009 Budget by Alistair Darling – will offer £2,000 to car owners wishing to trade in their car for a new model.
How long will the scheme run?
The scheme will be introduced in May 2009 and run until March 2010.
Which manufacturers are involved?
It's not clear which manufacturers will participate, but the scheme is voluntary so it's possible some manufacturers will not participate.
How much will I get for trading in my new car?
If you qualify for the scrappage grant you could receive £2,000. Manufacturers will be obliged to pay half of the costs, but it's not immediately clear how this will work.
How many cars will be eligible?
It's estimated that around 10 million cars will be eligible for the scrappage scheme.
How do I qualify?
Put simply: If your car was first registered before 31 July 1999. It needs to be taxed and insured and have a valid MOT or SORN declaration.
The complicated version: The old vehicle being scrapped must be a car or van up to 3.5 tonnes, registered in the UK on or before 31 July 1999, currently registered with the DVLA to a UK-domiciled registered keeper making the application or on a SORN notice, have a current MOT test certificate, and have been continuously registered to the owner for the 12 months precedeing the purchase.
The new vehicle must be a car or van up to 3.5 tonnes, first registered in the UK on or after the date the scheme is launched and be the first registration for the car, be a UK-spec model and registered to the same registered keeper as the vehicle being scrapped.
Can I buy up an old banger on the cheap and trade it in for a scrappage grant?
No, you must be the named owner and you need to have owned the car you intend to trade in for at least a year. You won't be able to buy an old car and immediately trade it in.
Are nearly-new cars included?
No, despite some lobbying from used-car industries, only brand new cars will be included.
Will I have to buy a low-CO2 car?
Surprisingly no. You will be free to buy any new car or van you want, up to large SUVs and sports cars.
Why is there no limit on the CO2 emissions of the new car?
The government appears to have abandoned any notions that the scrappage scheme is an environmentally-firendly plan. It has probably not imposed a maximum CO2 level to aid British manufacturers such as Jaguar, Land Rover, Aston Martin, Bentley, Lotus and Rolls-Royce.
Who will make sure I qualify?
The dealer will check that the vehicle being traded in, and the new one being bought, qualify under the scheme and will do all of the necessary paperwork. The scheme will be audited by the DVLA.
What happens to my car after it's scrapped?
It will be crushed. Any dealership or garage that attempts to sell the car will be prosecuted.
What, even classics?
Yes, if you don't want your vintage Mark II Austin Allegro crushed don't trade it in for a scrappage grant!
So, what about new vans?
Vans are also included in the scrappage plan. The scheme applies to commercial vans up to 3.5 tonnes that are 10 years old or older.
Will I be able to lease a car under the scheme?
Presumably, although we haven't seen any details on leasing as yet.
What are the best deals available through scrappage?
Deals will vary from manufacturer to manufacturer and dealer to dealer.
City cars that can be bought for around £6,000 will be available for £4,000 after the scrappage grant is taken into consideration.
Can I use the £5K electric car grant in conjunction with a scrappage grant?
No, the £2,000–£5,000 electric car grant will only come into existence in 2011. The scrappage scheme will last only ten months.
What about in conjunction with Citroen's existing scrappage scheme?
Citroen hasn't indicated, but as it will be asked to contribute another £1,000 as part of the government's scrappage scheme, it seems unlikely that it will offer the two schemes at the same time.
Citroen's own scrappage scheme only runs until the end of April, so a statement will be expected soon.
Why has the government introduced this scheme?
The government hopes that the scrappage scheme will give the car industry in the UK a shot in the arm, and play its part in stimulating spending.
Which part of the car industry will be helped by the scrappage scheme?
No-one really knows who will benefit most from the scrappage scheme, or to what extent. Since the UK car industry exports the vast majority of the cars made in the UK it's not clear whether UK manufacturing will benefit.
Even though there is no CO2 limit on the new cars motorists will be able to buy, it seems likely that small cars will be most popular.
That means European manufacturers such as Fiat, Seat, Renault, Volkswagen, Citroen and Peugeot may be best placed to reap the rewards. Toyota, Honda and Nissan may also do well out of the scheme, while the UK's favourite manufacturers – Ford and Vauxhall – should sell good amount of the Ka, Fiesta, Focus and Agila, Corsa and Astra respectively. Mini will be hoping for a share of the new sales too.
Who is unlikely to benefit?
Although the grant does not restrict those wishing to buy more expensive, more polluting models, it seems unlikely that manufacturers such as Audi, BMW, Mercedes-Benz, Volvo, Saab, Jaguar, Land Rover, Bentley, Rolls-Royce, Lotus, Aston Martin or Lexus will benefit as significantly.
Although owned by foreign parent companies, Jaguar, Land Rover, Rolls-Royce, Bentley, Aston Martin and Lotus all manufacture cars in the UK and employ hundreds of thousands in the UK directly or indirectly.
Those manufacturers will be hoping that they see a modest boost to sales on the back of a scrappage scheme.
What about the used market and parts market?
There is considerable concern over the short-term effects on the used-car market and car parts market. Certainly demand in the short term is likely to decline.
What about the residual values of the cars bought during scrappage?
Residual values tend to be calculated on a three-year basis, so a glut of three-year old cars on the market of the same age is likely to result in slightly poorer residual values than those cars might otherwise depreciate to.
What happens when the scrappage scheme ends?
There's speculation that car sales may slump back down to their level at the start of 2009 – about 30 per cent down on the same time as the previous year, but the government will hope that a 10-month long scrappage scheme should see the industry through to the green shoots of recovery.
How have scrappage schemes worked on the continent?
Scrappage schemes have been very successful in boosting new car registrations. Sales in Germany have jumped by half a million.
How has the industry responded to the scrappage scheme?
The industry was not happy about the prospect of stumping up any cash itself for a scrappage scheme, but is likely to welcome the news as better than no scrappage scheme.
How much is all of this costing?
Reportedly £300m has been set aside by the government, which should earn back a good chunk of its outlay in VAT. How widespread the scheme is depends on how many manufacturers are willing to stump up their half of the grant.