Car scrappage scheme considered for ailing UK motor industry

Government officials considering the introduction of a car scrappage scheme to help boost the ailing automotive sector are in Brussels today for a European Commission summit on the subject as the recession takes a further toll on the UK motor industry.

Representatives from Germany, France and Italy – the three largest of the eight EU schemes – will be addressing the meeting set up to share tips on initiatives to lift flagging cars sales, and help meet environmental targets, by offering cash to people upgrading old cars in favour of newer, greener, models.

The UK car industry is calling on the government to follow the lead of European counterparts and set up a similar incentive to help mitigate the catastrophic effect of the financial crisis on both consumer confidence and access to credit on sales. But so far the jury is out.

The meeting comes as Mini is expected to make hundreds of workers redundant at its plant in Cowley, near Oxford, as early as today.

As sales fall ever lower, job losses are growing in number. Bentley added its voice to the sombre chorus last week, with 230 voluntary redundancies and 10 per cent pay reductions for all staff. Jaguar Land Rover has already made cuts of 1,450, Ford 850 and Nissan 1,200. And although Lord Mandelson, the Business Secretary, launched a rescue package last month including £2.3bn-worth of loan guarantees for low-carbon initiatives, the industry is pushing for measures more targeted to the acute crisis.

The Society of Motor Manufacturers and Traders (SMMT), the lobby group arguing the case on behalf of the industry, is pushing for a scrappage scheme. It is also in talks with the government about proposals for automakers’ finance arms to be able to access the Bank of England special liquidity scheme under which credit crunch-wracked banks can convert illiquid assets into cash. Mervyn Davies, the business minister, is due to meet with Mervyn King, the Bank’s governor, this week to discuss the proposal, but the SMMT will not reconvene with the government until April to discuss progress. “It is a bit frustrating for us because we would like to get things sorted quickly, but there is progress,” Paul Everitt, the chief executive of the SMMT, said.

Alongside redundancy programmes, major manufacturers across the country are also cutting working hours to bring production of vehicles in line with reduced demand. According to sources close to the government, officials from a number of departments are reviewing plans for short time working support scheme under which factory staff hit by reduced hours can top up their income. Although there are no formal proposals, any support is likely to be linked to training schemes.

A number of other European countries already have measures to retain skilled staff in place. In Germany, the government provides compensation of up to 67 per cent of income for up to 18 months; in France, state “indemnities” can add up to 60 per cent of an hourly wage; in Italy there are two schemes offering either 80 per cent or 60 per cent of the normal wage.

According to the latest estimates, new car registrations fell by 31 per cent in January compared with 2008. Overall it is expected to decline by 19.3 per cent in 2009.