The scrappage scheme has had a positive effect on the motor industry but what happens when it ends? asks PADDY COMYN
THE GOVERNMENT car scrappage scheme has been hailed as a success by the Irish motor trade and the new car sales figures for August show a 50 per cent increase on last year, with 11,766 scrappage scheme cars sold so far this year.
But is there a danger that with the scrappage scheme due to end on December 31st and no real prospect as yet of the scheme being extended, the industry could be bracing itself for a serious drop in sales in 2011. Similar drops were recorded in other markets when scrappage schemes came to an end. So is the sales rise of recent months a false dawn?
In other European markets the scrappage scheme, where it was implemented, boosted sales, but not to the degree it did in Ireland.
In Germany, Europe’s largest car market, sales rose 23 per cent during 2009 when its scrappage scheme was implemented, according to the motor industry federation VDA.
Similarly in France, in 2009, car sales rose by 10.7 per cent and in Spain, the scrappage scheme was responsible for a jump in sales in some months, but the year still recorded an almost 18 per cent fall in sales.
This year, following the end of the scrappage scheme in most markets, sales have dropped significantly and according to JATO Dynamics, who provide automotive intelligence, this fall off can be related directly to the scrappage scheme.
In July, there was a 17.4 per cent fall in new car sales compared to July 2009 and the end of the scrappage scheme has played a significant role, with the UK and France joining Germany and Italy, in posting lower July sales figures compared to the same period in 2009.
“The major western European markets clearly show the impact scrappage schemes had in supporting new car sales. These current figures represent the natural level of new car demand in these markets,” says David Di Girolamo, head of JATO Consult.
“The end of scrappage is having different effects in different markets. Germany’s scheme was the world’s largest and one of the longest, so its post-scrappage effect is one of the sharpest. The balance of new car sales has not shifted yet. However, if current trends continue and any of the other major markets gain momentum, we may yet see Germany lose its title as the largest new car market in Europe.”
There have been similar results in the US. In 2009, the US government’s “cash for clunkers” rebate program helped boost sales across the industry, but following its end, sales for the industry are expected to be down as much as 30 per cent. General Motors reported this month that its sales were down 24.9 per cent in August compared with last year. Sales at Nissan, Toyota and Honda all similarly fell more than 25 per cent.
The Society of the Irish Motor Industry (SIMI) has called for an extension to the scrappage scheme until the first quarter of 2011 at least. Some 54 per cent of new cars are sold in the first three months of the year, with 70 per cent in the first six months.
“In Ireland we are at very low levels of sales overall compared to normal times. Our scrappage total by year end will be a very modest number and the reality is that many of the scrappage sales have been by people with savings and people who are retired so it might not have the same impact,” says Alan Nolan of SIMI.
“We are grateful that we did get scrappage this year, but the State has gained enormously from scrappage and will have made €100 million from the scheme and it has boosted employment in the motor industry.”
Nolan agrees that the end of scrappage in December is likely to affect sales in the busy January period. “If we don’t get an extension to scrappage you have to be concerned that there will be a fall back in car sales. If it continued into the early part of next year it would ensure that sales levels continue to progress. Sales need to be closer to 100,000 and the only way to guarantee this is to extend it, although we know that this would only be a temporary measure.”
Gavin Hydes, managing director of Joe Duffy Motors says that many of the brands that his firm retail didn’t benefit from the scheme but he feels that there is an obvious benefit to the motor industry. “It has given people justification to go out and buy a car, we have seen more 2010 cars on the road so my view is that it would definitely be a benefit next year if we had an extension to the scheme. It would help with consumer confidence because the more new cars you see on the road, the better it is for the car industry. Whether the world will fall to bits without it, I’m not sure, but we need something to help stimulate consumers to go out and change their car.”
Due to the very seasonal nature of sales in the Irish motor industry, running a scrappage scheme through a calendar year was likely to be subject to the same peaks and troughs as sales in any other year, so an extension to the scheme would seem to be a solution since the car sales year effectively ends by June most years. As yet there is no indication that an extension to the scheme will be granted.
Either way, an end must come and the industry is preparing for a hangover: the extent of the pain is what needs to be determined.