Page last updated at 08:10 GMT, Thursday, 3 September 2009 09:10 UK

Car scrappage: Winners and losers

By Richard Anderson
Business reporter, BBC News

Cars waiting to be scrapped
Millions of cars will have been scrapped by the time schemes come to an end

For many car manufacturers, scrappage schemes have been a runaway success.

You just need to look at sales figures in recent months to see that government incentives have done exactly what they were designed to do - get motorists to buy new cars.

But a number of carmakers have enjoyed little benefit from the schemes, not to mention an army of second hand car dealers who have seen thousands of potential customers enticed by four figure discounts on shiny new motors.

So just who are the winners and losers from the car scrappage schemes adopted across the world?

WINNERS

You and me Up to $4,500 (£2,766) off a new car? Sounds like a good deal, and generally it is. But it is worth noting that you could have got the same discount regardless of any government incentive from a number of car dealers desperate to drum up business during the downturn.

Car eligible for scrappage scheme
Car sales have been boosted by the scrappage schemes

Wider economies Scrappage schemes have increased demand for cars, in turn boosting the manufacturing sector, a major component in most developed economies. Some analysts argue that these schemes played an important part in lifting both France and Germany out of recessions between April and June.

Carlos da Silva, senior auto analyst at IHS Global Insight, believes the impact of scrappage schemes in these economies has been greater than in other markets. This is due to the "cultural tradition of spending money. People [in France and Germany] tend to save a lot of money, so compared with the US and the UK, they already have money to spend," he argues.

The planet A contentious one this, but Professor Baback Yazdani, Dean of the Nottingham Business School, is convinced that scrappage schemes will help the environment. "New cars emit much less carbon dioxide" he explains. He says that the "cut-off point" - when improved efficiency outweighs the CO2 emitted in producing new cars - is between four and six years.

As most schemes stipulate the car being scrapped must be at least nine years old, it follows that less CO2 will be emitted into the atmosphere.

Ford One of the world's biggest carmakers, Ford was in big trouble at the end of last year. So much so, in fact, that it went in front of Congress to ask the US government for access to billions of dollars in financing.

CAR SCRAPPAGE FACTS
More than 8bn euros ($11.4bn; £7bn) has been spent by the US, UK, German and US governments on car scrappage
This equates to almost four million cars
France was the first country to introduce its scrappage scheme, last December
Germany has spent more than any other government - 5bn euros
The US scheme provided the most generous incentive - $4,500 for certain cars
The US and German schemes have already come to an end

It never took the money, but the 'cash for clunkers' US scrappage scheme came at just the right time. In August, Ford sales jumped 17% from the same month a year ago. The carmaker is in a much healthier position now.

Asian carmakers While not in quite the same dire trouble as US giants Ford, General Motors and Chrysler, Asian carmakers had seen sales plummet during the downturn. But with motorists targeting small cars with their scrappage discounts - precisely the kind of cars the Japanese and Koreans excel in - demand has picked up significantly.

Hyundai, for example, saw US car sales rocket 47% in August compared with the same month last year, while Honda saw sales climb 10%.

European small carmakers As in those specialising in small cars, not those making few of them. The likes of Volkswagen, Renault, Peugeot, Citroen and Fiat have also benefitted from increased demand from car owners looking for a good deal. For example, Citroen sales rose 19% in August against a year earlier, while Fiat and Renault saw sales rise 10%.

LOSERS

Luxury carmakers For the likes of BMW and Mercedes, car scrappage schemes have been something of an irrelevance. While a $4,500 discount on a $9,000 car might convince you to deal, the same discount on a $25,000 car is unlikely to make much of a difference.

BMW production chief Frank-Peter Arndt recognised as much when he said: "We were not particularly pleased by the scrapping scheme because it disadvantaged premium brands like ours."

Sales of BMWs fell by 18% in August in the US compared with a year ago.

Professor Yazdani suggests that scrappage schemes have distorted the market. "In previous economic downturns, the bottom end of the market was hit hardest. This time around, it is the top end."

The planet Not everyone is convinced that trading in an old car for a new one is environmentally friendly. Some people argue that, in fact, it takes a lot longer than four to six years to offset the CO2 emitted while producing a new car.

Others argue that the benefit to the environment is minimal when, in the US for example, you only need to buy a car that drives four miles to the gallon further than your 'clunker' to qualify for a $3,500 incentive.

A car being scrapped
Some environmentalists argue that scrapping cars is a bad idea

There is yet another argument against the green credentials of all scrappage schemes. Small, cheap cars are not necessarily the most environmentally friendly - their engines may well be less efficient than those in more expensive rivals.

Second hand car dealers "The used car market is in much trouble," says Mr da Silva. The simple reason is, why buy a second hand car when you can buy a new car for a similar price? "Why buy a [Renault] Clio with 50,000 miles on the clock when you can buy a new [Renault] Twingo for the same price?" says Mr da Silva.

Second hand car owners The same, of course, goes for individual sellers. If you want to sell your car, the chances are you will get less for it because potential buyers can buy a heavily discounted new version.

Holidaymakers Slightly convoluted this one, but bear with it. Car rental firms have struggled to get enough cars this summer as they've been forced to compete with increased demand from customers taking advantage of the scrappage schemes. This means fewer cars to rent and, therefore, higher rental prices.

Carmakers Car scrappage schemes in the US and Germany have already ended, so what happens now? These schemes give "an artificial boost to a depressed market," says Professor Tom Donnelly at Coventry Business School. The danger is, when these schemes are over, car sales could simply fall back to levels seen before they were introduced.

Demand might fall even lower as those who would have purchased a car over the next year or two might already have bought one.

Professor Yazdani says the key is to end the scheme when the economy is picking up.

But we will not have to wait long to see what the longer term impact of scrappage schemes will be - US and German car sales figures over the coming months will tell us just that.



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