The UK vehicle scrappage scheme comes into effect today (18 May 2009) which offers a £2,000 discount on a new car or light commercial vehicle (van up to 3.5 tonnes). The scheme will run until 28 February 2010, or until the £300 million government funds run out.

How does it work?

A customer can take their vehicle to a dealership and, as long as the following criteria are met, receive the discount off the price of a new car or van.

·         The vehicle must have been first registered in the UK before 31 August 1999.

·         The vehicle has been registered in the UK to the person making the claim and owning the new vehicle for the previous 12 months.

·         The vehicle is fully MOT’d, taxed and insured.

·         If the MOT has expired, it did so no longer than 14 days before the order was placed.

“The scrappage scheme is good news for consumers and the UK motor industry alike. It has already started to get people back into showrooms to kick-start demand in the market,” said Paul Everitt, SMMT chief executive. “There has been a good response to the scheme ahead of the official start date and industry is confident that this will be translated into additional orders.”

Will it have an impact?

Ahead of the official start of the scrappage incentive scheme industry reported an increase in consumer enquiries through showrooms and website hits to dedicated scrappage pages. The following details some reports from manufacturers.

Citroën

Citroën implemented a scrappage scheme in advance of the Budget announcement, which started on 1 April 2009. The scheme has seen a 15% increase in registrations in April due to the incentive.

Ford

Ford experienced the same number of hits on its scrappage web page within five days of the Budget announcement as it had previously had on its most popular page (new Ford Fiesta) throughout the whole of March.

Honda

Honda is seeing a significant level of interest - around 15% increase in sales enquiries from the initial announcement. Most enquiries are for Jazz - its smallest model but there is also a good spread across the range - including its British-built Civic and CR-V models.

Hyundai

‘Expressions of interest’ with dealers reserving cars are up more than 400% on normal. Some dealers are reporting more than that, and have already sold their entire 2009 allocation of some cars.

Renault UK

Renault has seen a 30-60% increase in showroom traffic and website hits are up 50%.

Škoda

In the few days that “register your interest” was live on the Škoda website, it had over 1,000 people register as well as a good response to the web pages about the scrappage scheme offer. 

Suzuki

A rural Suzuki dealer has reported a large increase in orders from a previous one new car per week to two per day currently.

Vauxhall

Vauxhall scrappage web page has had close to 60,000 hits since the scheme was announced on April 22.

Which manufacturers have signed up?

All major vehicle manufacturers have indicated to SMMT that they are taking part in the scrappage scheme. This may change from the final list which will be announced by government. The following have indicated they will take part:

Abarth, Alfa Romeo, Audi, BMW, Chevrolet, Chrysler, Citroën, Daihatsu, Fiat, Fiat Professional, Ford, Honda, Hyundai, Isuzu, Jaguar Land Rover, Kia, Lexus, LTI, Mazda, Mercedes-Benz, MG Motors, MINI, Mitsubishi, Nissan, Renault, Peugeot, Proton, Porsche, Saab, SEAT, Škoda, smart, Subaru, Suzuki, Toyota, Vauxhall, Volkswagen and Volvo.

If a manufacturer hasn’t signed up initially, it can join the scheme with one month’s notice. Equally if a manufacturer wishes to leave the scheme, it must provide three months notice before opting out.

What happens next?

Once the dealer is satisfied that the old vehicle meets the criteria, the customer can place their order for the new vehicle and the government contribution is reserved. The manufacturer has four months to deliver the vehicle to the dealer. Once the vehicle has been delivered, the dealer will send the old vehicle to be scrapped through an authorised treatment facility, which will do so in an environmentally responsible manner.  If the vehicle takes longer than four months to be delivered to the dealer the funds are reallocated.

Government will place a unique code on each claim and will monitor the scheme through collating information via two spreadsheets. The first will have the details of the old vehicle being scrapped and the second has the details of the claim once the old vehicle has been scrapped; this will include the new vehicle details. It will carry out telephone audits during the scheme as well as a final audit two weeks after it ends.

Manufacturers will submit weekly reports detailing orders placed through the scheme and likely delivery dates. This will be used to monitor take-up and the remaining funds. Once the transaction is completed the manufacturer will submit a payment claim to government – this will be done on a bi-monthly basis on the 1st and 15th of each month. If the claim meets all the requirements, the manufacturer will be paid within ten working days and the manufacturer will reimburse the dealer within a further ten working days.

What evidence is there that the scheme will work?

Across Europe, schemes which have been under way for some months have had a positive impact on vehicle registration numbers. The chart below shows the effect of the scheme in the four major European markets in the first quarter of 2009, where demand either increased or the rate of decline slowed compared to a fall in registrations in the UK. 

Scrappage – environmental benefits

The UK’s scrappage incentive scheme will start on 18 May with many consumers replacing their old vehicles with a newer, cleaner and safer model.

Based on data from the Society of Motor Manufacturers and Traders (SMMT), 85% of a car’s life cycle CO₂ comes from the use phase of a vehicle. Taking an average mileage of 14,000 kms per year, and tailpipe CO₂ emissions of 165g/km, it would take one year to pay back the emissions created through production, which account for 10% of lifetime CO₂.

Since the introduction of mandatory air quality standards car makers have faced ever-tighter limits on air quality emissions. Pre-1999 vehicles will have a Euro 2 engine as standard compared to Euro 4 in new vehicles. These engines deliver more than a 50% improvement for harmful emissions.¹

But won’t there be piles of old cars in scrapyards around the country?

No, the scrappage scheme has been designed to be as simple as possible for the customer. The dealer will ensure that the vehicle is disposed of in an environmentally friendly way through an Authorised Treatment Facility² and will need to prove this has happened in order to claim back the scrappage incentive.

When a car is scrapped, 85% of it can be recycled or re-used. Once reusable parts have been removed the vehicle is then de-polluted by removing its harmful liquids, tyres and deploying the airbags. The remaining materials are then shredded to recover valuable parts like steel, aluminium and recyclable plastics, some of which go back into vehicle production.  

CO₂ emissions per vehicle produced have fallen 45% since 1999 and almost 10,000 tonnes of waste have been prevented from entering landfill sites.

Notes:

1.

2. More information may be found at www.autogreen.org and www.cartakeback.com.

Scrappage - Q&A

1. What are the basic details of the scheme?

·         Passenger cars or vans not exceeding 3.5 tonnes are included

·         Vehicles registered in the UK on or before 31 August 1999 are eligible

·         The scrapped vehicle must have been owned by the registered keeper for at least one year and the name must match that on the new V55 form

·         The vehicle being offered for scrapping must have a current MOT test certificate or one no more than 14 days past the expiry date. It must also be fully taxed and insured.

2. What is the process for consumers who want to participate in the scheme?

Consumers will take their car to the dealer to confirm eligibility and the dealer will take care of the rest. The dealer is responsible for all paperwork and for getting the car scrapped in the right way.

3. What do I need to take with me to the dealer?

    You will need to take a valid MOT certificate, your V5C registration form, and a valid ID.

4. I have two vehicles that are eligible for the scheme.  Can I get £4,000 towards my new vehicle?

    No. Consumers may purchase one new vehicle per one old vehicle scrapped under the scheme.

5. Is there a vehicle-per-household limit?

No, but the rule is one vehicle scrapped for each new purchase.

6. What happens to my vehicle once it is scrapped?

At least 85% of your vehicle will be recycled at an authorised treatment facility (ATF). More information at www.autogreen.org and www.cartakeback.com.  

7. How much does this scheme cost the taxpayer?

Government has capped the scheme at £300 million which includes admin fees. However, government will be able to off-set this cost against the increased VAT revenue received.

8. I scrapped my vehicle before the scheme was announced and received a Certificate of Destruction (CoD).  Can I take the CoD to the dealer and get the £2,000 incentive toward a new car?

No, you must take your vehicle to the dealer for scrapping. A CoD is not sufficient to participate in the scheme.

9. I have an eligible vehicle and already placed an order before Budget 2009.  Can I have the scheme applied?

No, only orders placed since 23 April are eligible for the incentive. 

10. I want to use the scheme but my vehicle is valued at more than £2,000.  Can I trade my vehicle in and use the scheme?

If your vehicle is worth more than £2,000 you can still trade it in, in the usual way but the government incentive will only apply to vehicles that are scrapped.

11. Under this scheme, do I have to buy a new vehicle similar to my current one?

No – regardless of the vehicle scrapped, you can buy any new car or van included in the scheme. Participating manufacturers must apply the incentive to all models in their range. Equally you can trade in a van and buy a car or vice-versa.

12. How long will the scheme run?

The scheme will run until the end of February 2010 or until the £300 million pot has run out.

13. What will happen to the incentives and discounts vehicle manufacturers are currently offering?

Many of the existing incentives and discounts will remain in addition to the scrappage deal. Several manufacturers have also extended discounts for certain models in their ranges.

14. I have heard that CO₂ emissions from the production of a new car is far worse than from the operation of my current, older car. What kind of environmental impact will this have?

Only about 10% of a vehicle’s CO₂ emissions are derived from production, 5% from being scrapped, and 85% from the in-use phase. As new cars are on average 15% cleaner than older models, you would have saved the equivalent production output in about one year.

15. Is this the same as the electric vehicle incentive scheme?

No. In addition to the scrappage scheme, government has announced a £2,000 - £5,000 incentive for consumers to buy electric and plug-in hybrid cars, likely to be operational from 2011.

16. I want to support British jobs.  Will my purchase actually help British    workers?

67% of vehicles sold in the UK are from manufacturers that also produce engines and vehicles here. In total more than 800,000 people are employed in the UK automotive sector, from supply chain through to sales, service and repair.  By stimulating demand for new vehicles we will support all parts of the industry from design and development through to the retail sector.

Automotive is a global business and the UK benefits from global markets and support. European countries which have implemented a scrappage scheme include: Austria, France, Germany, Greece, Italy, Portugal, Romania, and Spain.  The sector will benefit from a co-ordinated approach across Europe.

17. Isn’t the scrappage scheme another part of the motor industry’s bailout? 

The motor industry has not received a ‘bailout’. The aim of the scheme is to kick-start the demand and get consumers buying again. 

18. How does the scheme affect VAT?

     VAT should be reflected on your invoice, for example:

     New car:  £10,000

     VAT at 15%: £1,500

     Sub-total: £11,500

     Scrappage incentive: -£2,000

     Total: £9,500.

Industry is currently seeking clarity from BERR regarding the treatment of VAT on new vehicles being sold through the scrappage incentive scheme. While vehicle manufacturers hope to resolve the situation and progress with the scheme at the earliest opportunity, there is likely to be a short delay with some manufacturers while the VAT issue is resolved.

19. Are all car makers participating in the scheme?

  Participation in the scheme is voluntary for manufacturers, dealers and motorists. 

For more, please see www.smmt.co.uk/scrappage