David Prosser: Scrappage has only delayed the inevitable

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The Independent Online

Outlook Now we have full-year figures for car sales in 2009, the outlook for 2010 is pretty bleak. The Society of Motor Manufactures and Traders' data shows that the scrappage incentive scheme has, since its introduction last April, been accounting for around a fifth of all car sales. In other words, it has been a hugely valuable boost to the car industry – it is also one that will shortly be no longer available.

What will happen when scrappage ends? Sales will slip back badly. It's not just that demand has been stimulated by scrappage, but also that many purchases have been brought forward – 2009 has cannibalised the sales of 2010 and 2011. There's also the worry that compared to last year – when there were no tax rises to speak of and historically low interest rates – British consumers are likely to have less spare cash to spend on anything this year, let alone a big-ticket item such as a car.

There are some reasons to be a little more optimistic. There was hardly any purchasing done by corporate customers during 2009, and with company car fleets now ageing, demand from business customers should increase. The availability of credit has eased somewhat and should continue to do so, which ought to help too.

All the same, this year may finally be the moment when Europe's car industry has to begin making the painful decisions it has previously been able to put off thanks to the state aid it has received in the form of all these scrappage programmes. It remains a remarkable fact that not a single car production plant has yet been closed during this downturn. Sad though it may be, the car industry still suffers from chronic over-capacity – sooner or later it will have to deal with that.

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