Page last updated at 23:06 GMT, Thursday, 21 May 2009 00:06 UK

Scrappage scheme boosts small car sales

By Jorn Madslien
Business reporter, BBC News, Millbrook Proving Ground

BBC business reporter Jorn Madslien drives a Jaguar XF
It is more comfortable to drive a Jaguar than it is to try to sell them

Just days after the UK introduced a car scrappage scheme - where car buyers are given a £2,000 discount on a new car if they scrap one that is at least 10 years old - the motor industry has hosted its annual test driving day for journalists.

An impressive range of some 160 of the latest models that are for sale in the UK were available for trials at Millbrook Proving Ground's intricate hill route, the off road track, or around the high speed circuit.

But as the more than 250 journalists in attendance buzzed about the Millbrook test tracks, the manufacturers were left behind in their exhibition chalets.

The were wondering whether the scrappage scheme, half of which is funded by the government, will bring buyers back to the showrooms.

At the Kia stand there was little doubt.

"We've taken 4,000 orders on the back of the scrappage scheme," beamed one representative for the Korean carmaker Kia Motors, which has slashed its £6,195 Picanto to £4,195.

"If the customer then puts up a £1,000 deposit, they can have the car for £10 per week," declared her equally buoyant colleague.

It's a promise that reinforces BBC Top Gear's assessment of the car: "It is to motoring what the disposable camera is to photography."

Changed mindset

Citroen has also seen demand soar since the scheme came into effect on Monday; up 30% so far in May compared with the same period last year.

By volume:
Nissan - 386,555
BMW Mini - 234,461
Honda - 230,423
Toyota - 213,329
Land Rover - 184,831
Source: SMMT

The French company had stolen a march on its rivals by offering the £2,000 scrappage discount from 1 May, thus carrying the whole cost themselves for almost three weeks, but it had been well worth it, according to Citroen's spokesman.

Test drive requests from potential customers had quadrupled, with demand for its small C1 soaring, and half its C1 sales were now made up by scrappage customers, the spokesman said.

"The scheme has just changed people's mindset," observed Paul Everitt, chief executive of motor industry body SMMT, who pointed to how activity in the car showrooms had picked up dramatically since the scrappage scheme was announced in last month's budget.

Small car impact

But the enthusiasm was by no means universal.

Toyota iQ
The scrappage scheme benefits small car manufacturers the most

Car sales in the UK had already fallen from 1.8m in 1999 to 1.45m in 2008, and so far this year the figures had slipped by between 20% and 30% each month, when compared with the same months last year.

It is still early days, but as yet most of the motor industry officials seemed to think the scrappage scheme would be most beneficial to those who make small, fuel efficient cars.

Many said the scrappage scheme had done little for their own sales, and you did not have to climb far up the value chain before there were audible grumbles.

Mini's spokesman said it had not seen much of an impact since most Minis were still quite pricey.

However, the BMW-subsidiary was finalising plans to launch a stripped down, cheaper version of the Mini One to take advantage of the scheme.

The car should be here within weeks. "It'll have to happen soon, or we'll miss the boat," the spokesman said.

Tough times

Obviously, the higher up the ladder the less impact the scrappage scheme would have on sales.

Taking a Jaguar XK for a spin around the country lanes near the test track, and three facts became immediately apparent.

One; the Jag was one of - perhaps the - most refined car there. Two, as the Jaguar spokeswoman pointed out: "If you've got a 10 year old car you'd like to trade in for scrap, you're not going to buy yourself a new Jaguar."

And three, being behind the steering wheel of perhaps the classiest car at the event was considerably more comfortable than being out in the real world, selling luxury cars, or indeed any cars at all.

Great potential

SMMT's Mr Everitt nevertheless insisted the future offered great potential.

"There are huge markets out there," he said.

"We know there's going to be demand there."

He said the industry's challenge was to retain the UK motor industry's share of the global market and to raise its value as the total market would grow.

But such concerns still seem a long way off for many carmakers, whose main focus is likely to be on survival for months to come.

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