David Prosser: Car makers helped to stay on the road

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The Independent Online

Outlook Farewell scrappage, which ended last week and helped to produce a 27 per cent increase in car sales during March, according to data yesterday. Almost half of that rise was down to the scheme: without scrappage, sales growth in February would have been only 14 per cent.

What this tells you is that now scrappage is done with, sales of new cars will fall back again. The Society of Motor Manufacturers admits as much – yesterday it said "headline registration numbers are expected to dip", though it has previously forecast a 9 per cent fall in sales in the year following the end of the scheme.

Does this mean that scrappage was the wrong policy response to the woes confronting the motor industry – and its supply chain – as the recession began to bite? Well, not necessarily. First, it's worth pointing out that a good part of the British motor trade might not still be around, contemplating the "dip", had it not been for a one-off stimulus to their industry.

Also, the statistics show that a good number of people buying through scrappage were older drivers replacing cars they would otherwise have kept for several years yet. That suggests scrappage has not resulted in quite the cannibalisation of sales that might have otherwise been made this year that some analysts predicted.

Finally, remember that half the cash for scrappage came from the motor industry and that the Treasury earned VAT on every sale – in most cases the tax paid by motorists more than covered the cost of the government subsidy they received.

Not that there are no criticisms to make of scrappage. It has been of most benefit to foreign manufacturers and may have delayed the moment when car companies have to confront their demons, as they must.

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