Selling Cars

Scrap scrappage?

Well, it's finally happening. We've been saying for months that scrappage was on the cards. Now, after the budget, we can see the details: Trade in your 9+ year-old car in exchange for £1000 from the government and £1000 from manufacturers towards the cost of a new car.

But what does this mean for the used car industry and used car buyers? And is this a good idea overall?

First, it's worth looking again to Germany, who have had a similar plan in place for months. After initial optimism, criticism appears to be mounting.

A journalist from Europe's biggest-selling car magazine, Bild-Auto, told the BBC that positive effects are temporary: “The people who are buying the cars now will not buy next year - so we're all expecting a sharp slump in 2010,” he said. "Also, it's mainly small cars in the lower price segment that are selling. BMW, Mercedes and Audi are profiting very little."

The likelihood is we'd see a similar result in the UK. There is also a knock-on effect that might reduce residual small car values. To begin with, cars traded in are legally not allowed back on the road and have to be crushed (hence “scrappage”).

There is also a clear bias towards scrapping smaller vehicles. If you get the same amount for getting rid of a ten-year-old Peugeout 105 as you do a Mercedes, then it stands to reason that more people will be tempted to scrap cheaper – less environmentally damaging – smaller cars (as has been the case in Germany). This puts big question marks over the much-heralded environmental benefits of the scheme.

(Not to mention the fact that not all older cars are less efficient than new models, and new cars take lots of energy and resources to build.)

So, if more smaller vehicles will be getting traded in for new models, that has to have an effect on used dealers and garages. Although recent stock shortages have prompted an upturn in used car prices, these may fall as a result of scrappage – particularly in the nearly new bracket. (Although the very cheap end of the market (sub £2000) may find that their values go up.)

In fact, as has happened in Germany, it's likely that some used car dealers and garages are going to go out of business because of scrappage.

Frankly – with the economy still so volatile and unpredictable, it remains to be seen exactly what the effects of scrappage might be for the used car market. Either way – the government has earmarked £300 million for the scheme. That means it'll last as long as it takes for 300,000 people to take advantage of it. After that – who knows! It may be yet another government example of putting a sticking plaster on a broken bone.

As always, if you're looking to sell a used car before the scrappage rush – get in touch with us for a fast, easy sale!