David Prosser: Facing up to life after scrappage

Outlook: The US scrappage scheme is more closely linked to green goals than Britain's
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The Independent Online

Having been slower than most to introduce a car scrappage initiative, the US is performing a useful service in allowing "cash for clunkers" to expire with no replacement. The rest of the world will get to see what happens to auto sales once a scrappage scheme comes to an end.

The question – in both the US and the UK – is whether having stimulated interest in new car purchases, scrappage has been enough to kickstart a sustainable recovery in the auto sector, or whether that interest will dissipate once the scheme has gone.

There is plenty of reason to fear the latter. There can't be too many people for whom the notion of upgrading their old banger to a new model was an idea that had never occurred to them before scrappage came along. What's more likely is that people vaguely considering upgrading have brought forward their plans in order to take advantage of the scheme.

Fair enough, but future sales have thus been cannibalised. Certainly, that has been the experience of the past. When France suspended a scrappage scheme introduced in the mid-Nineties, it saw sales fall by more than 20 per cent, almost overnight.

Moreover, scrappage schemes are currently camouflaging a nasty little problem for the global car industry. The cost of raw materials is rising and many manufacturers have felt compelled to pass on some of those increases. Once scrappage goes, would-be buyers will find that the cost of a new vehicle is higher than they might have expected. Nowhere, by the way, is that problem more acute than in the UK, where exchange rate movements have prompted manufacturers to raise showroom prices especially sharply.

Supporters of scrappage argue that these schemes were introduced at the low point in the economic cycle – that there will be less need for them as the economy improves. It's a fair point, but in the US the recession is ongoing: unemployment is still rising very rapidly, which isn't going to be a plus for the auto sector.

The UK will watch with interest, because we have a similar problem with rising joblessness that is not likely to ease until well after the recession draws to a close.

Finally, note that the US scrappage scheme is slightly different to the one operating here, in that it is more closely linked to green goals. You can only trade in vehicles that guzzle petrol at 18 miles to the gallon or less – and you can only buy a new vehicle that will do a more efficient 22 miles to the gallon or more.

That explicit link should have focused American drivers' minds on the lower cost of greener motoring. The UK scheme, by contrast, is less overtly environmental – so its green legacy may be less enduring.

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