What A Fantastic Own Goal

I had a post-audit meeting with a client a couple of weeks ago who happens to have a Peugeot franchise. We began the meeting in the usual way, discussing the general state of the motor trade, the impact of the VAT cut etc before moving onto discussing the company's last financial statements.

I asked him how the governments much vaunted scrappage scheme had impacted on his business. "It hasn't," he replied, "Peugeot cars are above the level, even with a £2,000 discount, that most people would want to buy in exchange for scrapping their old car. Plus the fact that the scrappage scheme has only succeeded in financing the Korean motor industry not U.K manufacturers and thirdly the most dangerous cars are still on the road because the people who can't afford to maintain them properly usually can't get finance for a new car."

The scrappage scheme works like this, in case anybody out there isn't familiar with it, there is a £2,000 discount offered on new vehicles when an owner trades in his/her old vehicle which is more than 10 years old, said vehicle must have been owned by the same person for a year preceding the date of sale. The £2,000 discount is split equally between the car manufacturers and the Government. Now the Government's contribution is almost certainly neutralised by the VAT element of new car purchases so there isn't actually a win-win situation here. In fact my client offered a wonderful conspiracy scenario which involved some junior minister working out all the costings involved and realising that if fewer old bangers were on the road then there would be fewer accidents and therefore the NHS budget could be cut. Nice theory but far too deeply thought out to have been considered by anybody in Whitehall!

The funding for what was originally planned to be a year long exercise was £300 million of taxpayers money, this equates to roughly 300,000 new car registrations. Up until the end of August there have been 100,000 new cars registered with approximately another 230,000 new cars ordered by dealers. So that must be cause for celebration surely? The Labour government, almost at the point where it is on its back waving its legs in the air crying, "We aren't dead, we're simply resting," has pulled one out of the bag. Well no it hasn't, just as my client predicted, and let's face it if you want to know about the viability of a scheme involving cars I think I'd take the word of a man whose family has been selling cars since 1954 over Government spin.

The top ten manufacturers in the Scrappage League Table*, based on the number of scrappage registrations, to date are:

1. Hyundai Group (no cars manufactured in U.K) - 20,100 registrations - U.K Taxpayers subsidy £20.1 million

2.Ford (inc. Volvo) (less than 200 cars manufactured in U.K) - 14,000 registrations - taxpayers subsidy £14 million

3.VW Group (Inc.Seat and Skoda) (no cars manufactured in U.K) - 10,300 registrations - Subsidy £10.3 million

4. Peugeot-Citroen (no cars manufactured in U.K) - 10,000 registrations, Subsidy £9.7 million

5. Toyota (approx 1,000 cars manufactured in U.K) - 9,000 registrations U.K Taxpayers subsidy £8.8 million

6.Fiat Group (no cars manufactured in U.K) - 7,500 registrations Subsidy £7.4 million

7. Renault-Nissan (at last a decent number of cars made in the U.K - 6,200) 7,300 registrations at a cost to you and I of £7.3 million

8. Vauxhall (4,000 cars made in the U.K) 7,000 registrations at a cost to the taxpayer of £6.8 million

9. Honda (1,500 cars made in the U.K) 4,000 registrations at a cost of £4 million of your English pounds

10. BMW/Mini (1,500 cars made in the U.K) 3,000 registrations at a cost of £2.6 million

So from the Top Ten there have been approximately 15,000 cars sold under the scrappage scheme that were manufactured in the U.K but the total cost to the taxpayer is £91 million. Now come on at the back do the maths, that works out at a subsidy on every car of £6,000 per car, or to put it another way for every £10 of taxpayers money 'invested' in this scheme, £8 has gone to help the economies abroad.

Now I don't know about you but I would have preferred the Government to have looked long term into developing more 'green' vehicles, the problem is that U.K Governments don't look long, they look short, in fact most administrations have the eyesight of Mr Magoo.

Yes of course there have been plus points, dealers are busy! Hyundai have been so busy since May they have had to take on an extra 20% more staff just to sell the 20,100 vehicles they have sold under the scheme, so unemployment has at least been reduced. But what about the poor U.K car manufacturers? 90% of the cars registered under the scheme have been imported, Hyundai and Kia have suddenly shot to the top of the sales charts in the U.K because they make small compact cars that are as cheap as chips, Hyundai's share of the U.K market has this year risen by a staggering 323% - and we've paid for that - and September is predicted to have been the best ever month for the company in its history. Nissan, who were once held-up as the shining example of British experience allied with Japanese business acumen have taken on the 400 staff they had previously had to lay off, although this time it is on a temporary basis.

As with a lot of Labour plans over the past 12 years the scrappage scheme, like the increase of the availability of fund through the banks, was obviously the back of an envelope job. It has now been extended to include vans over eight years old, you don't have to be a political cynic to see that this change to the rules coincided with the possible closure of Vauxhall's Luton plant (home of the Vivaro) or the closure of Ford at Eastleigh.

The British Government could also have followed the lead of its French and German counterparts, the French have told its car makers that they must not spend a single Euro outside of the country, the German's (under the leadership of Angela Merkel) have guaranteed German jobs by supporting Opel.

Balancing the economy is all about balancing the books and supporters will argue that the increase in jobs at Hyundai and Sunderland show its working, I'd say that the £2 retained in the U.K out of every £10 spent shows its been an economic failure, even allowing for the cost of unemployment benefit and the social stigma attached to unemployment. It used to be argued that for every one job at Longbridge there were 40 others involved in the supply chain, it seems that we are now supporting those 41 jobs in South Korea, Germany and France rather than in the U.K and that to me seems wrong.

* Based on provisional figures from the SMMT

P.S - a wonderful touch to this post occurred when I pressed the publish post button, a link to an advert for Vauxhall selling cars under the scrappage scheme appeared!