The see-saw debate between car industry chiefs and politicians in the UK, over whether to introduce a scrappage incentive or not, just got another kick in the teeth.
According to a report in the Financial Times, the car scrappage scheme in Germany, regularly quoted as an example of how a scrappage scheme can work to boost car sales, is set to cost the German government three times the original estimate.
A victim of its own success, the German scheme helped to boost car sales which grew 21.5 per cent February compared to the same month of the previous year. Meanwhile back in the UK February saw car sales fall 21.9 per cent. On the downside, the German government is now facing a bill which for the popular scheme which could reach three times the measure’s initial €1.5bn price tag.
The popularity of the bonus is now causing a big headache for the German government and beginning to question the merits of the state seeking to influence consumer spending.
When the German cabinet meets today, Angela Merkel, the chancellor, will have to decide how best to prevent the scheme from blowing too big a hole in the state’s finances without sparking public outrage.
The scheme has attracted more applications than ever expected. Two months before it is due to expire, 1.2m consumers have applied for the €2,500 (£2,251) cash gift, twice the amount the government budgeted for. Economists expect more applicants to join the scheme by May 31.
Read the full article here: FT.com
The arguments for and against a scrappage scheme has a number of angles. On the pro-scrappage side, it is argued that such a scheme could help to get old, polluting vehicles off the road, helping the UK meet its carbon emission targets, while helping to boost the struggling car industry without giving the money directly into the hands of the carmakers’ chief executives. On the other side, concerns have been raised about the true environmental cost of such a scheme claiming that the carbon-intensive manufacture of a new car outweighs the carbon-saving of running a more fuel efficient car. Additionally as most carmakers are not UK based, the government is concerned that such a scheme would line the pockets of foreign manufacturers and do little to help the UK car industry.
The Society of Motor Manufacturers and Traders (SMMT), the AA and Retail Motor Industry Federation (RMIF) have all spoken in support of the scrappage scheme while the Environmental Transport Association (ETA) and respected industry expert, Professor Garel Rhys, of Cardiff University Business School have spoken out against the scheme.
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