Analysis: What a scrappage scheme would mean for the car industry

A draft proposal for a new sales incentive scheme has been agreed between all manufacturers and retailers, Society of Motor Manufacturers and Traders CEO Mike Hawes has revealed, but it remains uncertain if it will be put to the government, let alone implemented.

Until now, Hawes and the wider car industry have been reluctant to openly discuss any incentive scheme, concerned it could cause would-be buyers to pause their purchases. But even then, weekly polling of more than 6000 visitors to Autocar sibling brand What Car?’s website has consistently revealed around a third were waiting in expectation of one.

While some have reported that the government has ruled out a scheme, the Department for Business, Energy and Industrial Strategy has been careful to leave the door ajar, stating: “We have no current plans to change the existing incentives or to introduce a scrappage scheme.”

Hawes declined to go into details of the draft proposals, but he made clear that there’s no chance of them being reviewed until the end of September at the earliest. “It’s a huge month for the industry, and the government quite rightly wants to know what level demand truly is at,” he said during the inaugural Autocar Business Live webinar last week. “Even then, the truer economic picture isn’t likely to become clear until the fourth quarter [of 2020]. So if anyone wants a new car, I wouldn’t be waiting in hope. Having a proposal ready and agreed is just good practice; it doesn’t mean it will be required.”

That view was echoed by James Brierley, CEO of Inchcape, the sixth-largest car retailing group in the UK. “Sales have been strong in the past month and the pipeline looks good,” he said. “This is a market dominated by lease renewals, which come around regardless of the pandemic, and it’s clear from our sales data that some buyers are actually willing to spend more, having saved during lockdown. “Used car sales are also strong, and while fleets are holding off renewals, that could be seen as another reason to be positive for the future.

“If you ask me if the car industry deserves support, then the answer is emphatically yes. The income car sales and maintenance work generates for the country is self-evident. If the industry needs help, then there’s no question that it should be given. But for now, I remain very positive about the opportunities ahead for at least the next six months.”

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The latter point is also critical to how the industry and government would go about tackling criticism for supporting a scheme to sell more cars for an industry with a poor reputation following the Dieselgate scandal. Subsidising sales of a premium, possibly diesel, SUV may otherwise seem to be in poor taste, even if the tax income from the transaction meant the sale was at a net benefit to the Treasury.

“To date, we’ve heard of more than 11,000 jobs being cut across the automotive sector out of around 860,000,” said Hawes, prior to retailing groups Inchcape and Pendragon announcing that they will add at least 10% to that total. “We expect many more to come when the job retention scheme ends, and it’s our priority, along with the government’s, to protect all we can.

“Following the 2009 crisis, every plant in the UK secured major investment from its owners. The workforce had proved that it was efficient and delivered great value. There’s a huge amount of talent in our retail, supplier and aftermarket sectors too. That hasn’t changed and, whether we have an incentive scheme or not, keeping those skills in the industry is paramount.”