Would €2,500 Make You Buy A New Car?

I drive along the M18 fairly regularly and in recent months, a new landscape feature has appeared: Cars.

Hundreds – possibly thousands – of unsold new cars. In this case, they appear to belong to BMW – MINIs and new BMWs, filling a parking area the size of several football pitches.

These are just a few of the estimated 500,000 unsold cars that have been stockpiled around Europe as new cars sales have plummeted since late 2008. Car manufacturers are slashing prices as much as they can, but it doesn’t seem to be having a big enough effect in the UK. New figures out this week show that new car sales in the UK fell by 22% in February. Ouch.

So what’s the answer? Should car manufacturers just wait until sales pick up? Unsurprisingly, one of the first countries to do anything about this problem is Germany.

The German government has launched a scrappage scheme which provides a €2,500 credit towards the purchase of a new car to anyone who trades in a car more than nine years old. This also has an environmental benefit – removing thousands of more-polluting older vehicles and replacing them with lower-emission new vehicles.

As an indicator of how successful this scheme has been in helping to shift unsold new cars, consider these facts:

That’s right. New car sales in the UK fell by virtually the same percentage as they rose in Germany.

The Skoda factory has even had to go back to a five-day working week from the beginning of March to meet demand – having changed to a four-day working week earlier this year.

In the UK, however, doom and gloom reigns supreme. Yet how much tax revenue – direct and indirect – would be created by boosting new car sales and increasing the scrapping of old cars? Quite a lot, I bet. I don’t know if it would offset the costs of running a German style scrapping incentive but I wouldn’t be surprised if it came close.

What’s more, surely it would be better value for us, the taxpayer, than yet another costly bailout of a loss-making car firm, disguised as funding to build a ‘green car’ – a.k.a. just another hybrid?

Volkswagen, by the way, expects to make a profit in 2009.

Update: To illustrate how powerful the environmental benefits of a scrappage scheme would be, have a look at this link. CO2 emissions from new cars in the UK fell by 4.5% last year and are 15% lower than they were nine years ago – the minimum age limit for the German scrappage scheme.

By introducing a scrappage scheme, the UK government could seriously improve its chances of meeting the 2015 deadline for a reduction in average CO2 emissions to 130g/km.

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