United Kingdom

Leaked letter reveals SMMT and government discussions for scrappage scheme

The Society of Motor Manufacturers and Traders (SMMT) has been in confidential talks with the government over a possible £1.5 billion scrappage scheme to kick-start the new car market, a leaked letter sent to ministers has revealed.

The trade body said a 'market stimulus package' would need to encourage the purchase of diesel and petrol cars on an equal footing with cleaner vehicles - despite the government's push for drivers to switch to electric cars.

In his letter to Chancellor, Rishi Sunak, SMMT boss Mike Hawes said a subsidy of £2,500 off the price of a car when motorists scrapped their older vehicles - a £500 increase on the scheme introduced in 2009 to help boost the sector - could see a further 600,000 new motors enter the road.

Could a scrappage scheme help the UK new market recover from Covid-19: The SMMT has outlined the impact an incentive could have on the economy in a confidential letter leaked by The Guardian today

The combined impact of Brexit and the fall in demand for diesel cars following the dieselgate scandal had already seen UK vehicles registrations slip back in recent years.

However, the blow caused by the coronavirus pandemic, with car dealerships forced to shut for 10 weeks during lockdown, sparked sales to grind almost to a halt in April with just 4,321 registrations, which is the lowest monthly figure on record since 1946.

New car sales figures for May, due to be released tomorrow, are expected to tell a similar story as showrooms remained shut throughout the month - though have since been allowed to open, with social-distancing measured in place, as of June 1. 

The SMMT has already downgraded its new car sales forecast to just 1.68million registrations in 2020 - the lowest figure in three decades.

This puts the sector on course to record its worst performance since 1992's 1.59million registrations and a year-on-year decline of more than a quarter.

And it could be recalculated even lower following tomorrow's latest sales update. 

Mike Hawes, chief executive of the SMMT, said last month that a 'strong new car market supports a healthy economy' and called for 'car retail to be in the vanguard'.

He added: 'Safely restarting this most critical sector and revitalising what will, inevitably, be subdued demand will be key to unlocking manufacturing and accelerating the UK's economic regeneration.'

According to the the leaked letter sent to The Guardian, Mr Hawes said a scrappage scheme for petrol, diesel and electrified vehicles could kick-start the sector, despite campaigners and business leaders calling for any post-pandemic industry bailouts be linked to environmental goals and the shift to greener cars.

In a letter seen by the paper that was sent to the chancellor and the business secretary, Alok Sharma, the SMMT boss said a scheme would need to 'support the entire market, not just disproportionately favouring specific segments or technologies, recognising the diverse nature of UK automotive manufacturing'. 

An SMMT spokesman has confirmed to This is Money that the leaked letter was not sent as a means of lobbying the government to introduce a scrappage scheme but to 'outline the potential benefits' and the 'impact it could have' if plans were put in place. 

The trade body estimates that a favourable incentive would help to jump-start the economy with 600,000 new motors purchased in the country while also supporting the 'wider government ambitions in terms of climate change and improved air quality' due to newer, cleaners, vehicles replacing older polluting models.

The government faced pressure to introduce a scrappage scheme in 2017 to help the industry recover from a demand double-blow caused by Brexit and Dieselgate - though it never materialised. Instead, manufacturers launched their own in-house schemes, with little impact

However, many will question an incentive for the purchase of new petrol and diesel cars with the government looking to ban the sale of these motors from 2035 and eradicate them from the road entirely by 2050 as part of efforts to become carbon neutral. 

A scrappage scheme incentive of £2,500 toward the purchase of a new petrol or diesel car would also be just £1,000 less than the Plug-in Car Grant scheme in place that's designed to encourage motorists to switch to pure electric vehicles.

Buyers of electric vehicles are subsidised £3,500 under the current scheme, which was reduced from £4,500 over a year ago.

The grant was previously also available to plug-in hybrid cars, though these models were removed from the scheme in October 2018 when the value of the incentive was reduced - a move that garnered plenty of criticism at a time when the government wants to reduce the polluting impact of traffic.

Drivers who scrap older cars in favour of a new electric vehicle would - in theory - be able to combine the two government incentives, reducing the price of a zero-emissions motor by £6,000.

When the car scrappage scheme was introduced in 2009 to rekindle demand for new models following the financial crisis, it resulted in some 400,000 new motors coming onto the road. 

Pressure had been put on the ministers to replicate such a scheme in 2017 due to the slowdown in car sales caused by the dieselgate scandal, though a government-backed deal never materialised.

Manufacturers took it upon themselves to launch their own schemes in September 2017, with many running until the middle of the next year, though they ultimately failed to rekindle demand.

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