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Will scrappage schemes really boost new car sales?

Or is it all just political point scoring?

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There has been a flurry of new part-exchange “scrappage schemes” announced in the last few weeks, with manufacturers offering thousands of pounds for owners of older, higher-polluting cars to trade them in for shiny new vehicles.

All of the offers are based on owners part-exchanging a pre-2009 car for a new 2017 model. In all cases, the buyer of the new car must be the owner of the part-exchange vehicle, and must have been the owner for a sufficient time (to stop people buying an old banger for £200 then part-exchanging it for £2,000).

Strictly speaking, not all the of the offers involve scrapping your old car when buying a new one. The BMW/Mini offer is simply a part-exchange allowance for old diesel cars, while Mercedes/Smart and Hyundai are planning to scrap cars with Euro 1 to Euro 3 emissions levels (roughly pre-2005). Ford says it will scrap all part-exchanges handled under its offer.

Some of the offers are targeted at old diesel cars (BMW and Mercedes-Benz), while others are any pre-Euro 5 cars (Ford and Hyundai). And it’s expected that other manufacturers will start offering similar schemes very soon.

Meanwhile, Vauxhall has run a scrappage offer several times in the last few years, although in a slightly different way. Rather than offering £2,000 on top of your part-exchange value, it simply offers to give you a minimum of £2,000 for your car, regardless of its actual market value. There is also no link to emissions levels or fuel type.

To recap, here are the programmes currently available:

  • BMW/Miniup to £2,000 part-exchange allowance for pre-Euro 5 diesel cars on selected BMW and MINI models (mainly diesels). No scrappage component to offer.
  • Mercedes-Benz/Smartup to £2,000 part-exchange allowance on pre-Euro 5 diesel cars on selected diesel or hybrid Mercedes and smart models. Euro 1 to Euro 3 part-exchange cars will be scrapped, Euro 4 won’t.
  • Fordup to £2,000 part-exchange allowance on pre-Euro 5 cars (petrol or diesel) on selected Ford cars and van models. All part-exchange cars will be scrapped.
  • Hyundaiup to £5,000 part-exchange allowance on pre-Euro 5 cars (petrol or diesel) on selected Hyundai models. Euro 1 to Euro 3 part-exchange cars will be scrapped, Euro 4 won’t.
  • Vauxhall – up to £2,000 part-exchange allowance on any vehicle (to bring the part-exchange value up to £2,000) on selected Vauxhall models. All part-exchange cars will be scrapped.

Can the new scrappage schemes repeat the success of the past?

The government scrappage scheme of 2009/2010 certainly brought a lot of customers into a new car who wouldn’t have previously considered one. Nearly 400,000 cars were scrapped under the scheme, according to official government numbers.

It’s also fair to say that the timing of the government scheme coincided with the surge in popularity of personal contract purchase (PCP) car finance. Exactly how much the scheme contributed to the rapid growth in PCPs needs far more research, but it certainly meant a whole new generation of car buyers were suddenly able to swap their old banger for a shiny new car on a very affordable monthly payment.

With nearly 90% of all private new car sales now funded by PCP car finance, there is less opportunity to repeat this spectacular result. To succeed, car dealers will need to convert potential used car buyers, maybe planning to pay cash or get a personal loan, into new car buyers on a PCP.

In 2009/10, the biggest winners of the government scrappage scheme were budget mainstream manufacturers, with Hyundai and Kia leading the way. It’s not hard to see why this would be – a guaranteed minimum part-exchange value of £2,000 and PCP finance on less than £10,000 of new car was very affordable for many people.

But that was a national programme, supported by £400 million of taxpayers’ money (although it was actually very profitable for the government, since the VAT on each new car was worth much more than the state’s contribution). The new programmes are limited to a handful of manufacturers, each with their own terms and conditions, and limited to specific vehicles.

Vauxhall claims to have scrapped more than 20,000 vehicles under repeated scrappage schemes since 2015, but these are not linked to emissions and have simply been a Vauxhall promotion on selected models. It’s evidently worked well enough for Vauxhall to run the offer at least once per year over the last three years.

Are these offers simply marketing or political stunts?

Mercedes-Benz and BMW were the first to announce their emissions-based schemes, yet neither of those manufacturers are exactly targeting the budget end of the market – even with low-rate finance options available. How many old banger drivers are really likely to be seriously considering a new BMW or Mercedes?

Both the BMW/Mini and Mercedes/Smart offers are targeted at owners of old diesel cars, and are only applicable to selected new models. Both offers are also primarily aimed at getting new diesel cars out the door (plus selected low-emissions petrol models at BMW), in an attempt to halt the tide of customers deserting new diesel cars in favour of new petrol cars or used vehicles.

For two manufacturers who are heavily reliant on diesel sales to hit their targets, it’s certainly a convenient picture to paint for the public. “It’s old diesel engines that are killing polar bears, not new ones, so let’s show the world we’re doing something about it.”

Of course, it would be more convincing if Mercedes wasn’t actively recalling most of its Euro 5 and Euro 6 diesel cars (ie – the “low emissions” ones) for a software update to ‘improve’ their emissions performance.

The Car Expert's Ten Golden Rules of Buying a Car
Is Mercedes-Benz really expecting many customers to take advantage of its scrappage offer?

Good value for lower-end new car buyers

For mainstream manufacturers like Ford, Hyundai and Vauxhall, scrappage schemes make a lot more sense. The jump from old car to new car is a realistic step for far more customers, although it is usually reliant on competitive finance offers to make it happen.

Offering a couple of thousand pounds over the market value of a part-exchange vehicle could make a significant difference to the affordability of a new Hyundai i10, Ford Fiesta or Vauxhall Adam. It’s less likely to make a BMW 3 Series or Mercedes-Benz E-Class achievable for most buyers.

Ford gets van buyers involved

Of all the scrappage schemes announced so far, only Ford is making an attempt to include commercial vehicles as well as passenger cars. Including other discounts available, Ford is offering up to £7,000 off the price of selected new Transit vans.

Given the number of pre-Euro 5 vans clogging up city streets around the UK, and the stop-start nature of urban delivery work, this is perhaps the most laudable of all the scrappage offers available.

Ford Transit scrappage scheme
Ford is offering up to £7,000 off a new Transit, including a £2,000 scrappage allowance

What are the hidden costs of the scrappage schemes?

As with the 2009/10 government scrappage programme, there has been debate about the overall environment merits of the latest scrappage schemes.

While it’s great to get higher-polluting cars off the roads, it’s highly dubious as to whether the total environmental effect of scrapping perfectly roadworthy vehicles and replacing them with new vehicles is any better. There have been many arguments about this, and it’s fair to say that opinion is split.

The other elephant in the room is car finance. Although none of the scrappage schemes are reliant on customers taking out finance, the reality is that the target customers for these programmes are highly likely to need finance to afford their new car. So we reduce the number of higher-polluting cars on the road, but increase buyers’ debt levels to pay for the new lower-polluting ones.

With all the current discussion about growing car finance debt and the potential impact on the economy, it will be interesting to see if there is a corresponding jump in car finance levels from scrappage customers. We are potentially trying to solve one problem by making another one worse. Which, of course, is largely how we ended up with all these polluting diesel cars on city streets in the first place…

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Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.