Car sales rose for the second consecutive month in August, boosted by nearly 17,000 new vehicles bought using the scrappage subsidy.
More than 102,000 purchases have been made under the scheme since it started in May, and a quarter of all cars bought last month – typically a quiet period in the run-up to September's number-plate change – took advantage of the £2,000 grant.
In total, 67,000 new cars were registered last month, 6 per cent more than the same month last year. The rise followed July's 2.4 per cent gain, which was the first growth in the battered auto market since April 2008. But the year to date is still down by nearly 22 per cent – equivalent to 315,000 fewer cars sold. And even in August, the 2009 figure is nearly 11,000 units short of the pre-crash 2007 level, and 15 per cent lower than the last decade's average.
Paul Everitt, the chief executive of the SMMT trade body, said: "The scrappage incentive is having a positive impact, but with confidence still fragile, there remain significant risks ahead. It is essential that these early signs of recovery are sustained into 2010."
The biggest risk to a continued recovery in the motor industry is the expiry of the scrappage scheme. Although the subsidy, which is half-funded by the industry, could run until as late as February 2010, take-up has been unexpectedly rapid, and the £300m ceiling is expected to be reached as early as next month.
The worry is that the combination of the end of scrappage, and the close of the VAT holiday in December, could send the car industry back into a slump early next year. And there are calls from across the industry for the scheme to be extended, or at least its conclusion to be phased.
On the retail side, dealers say scrappage helps all sales by getting more people into showrooms.
Sue Robinson, the director of the Retail Motor Industry Federation, said: "Car dealers are reporting that the scheme is continuing to provide a halo effect for overall car sales, and is helping to increase footfall into showrooms by general buyers as well as scrappage buyers."
On the financial side, supporters of a scrappage extension point its relative cheapness. The majority of scrappage sales are to people who would not otherwise have bought a new car, so they produce an extra VAT contribution to the public coffers that all but cancels out the £1,000 that the Government commits to the subsidy.
But while strong car sales could help to push the UK economy out of recession in the third quarter – as they did in Germany and France – the danger is that spending on new cars diverts disposable income away from other consumer goods.
Howard Archer, the chief UK economist at IHS Global Insight, said: "The overall beneficial impact to the UK economy could be limited if the boost to new car sales stemming from the scrappage scheme at least partly comes at the expense of consumer spending on other goods or on services."
Scrappage winner: South Korea
The scrappage scheme is widely hailed as a success, with two consecutive months of rising car sales and take-up of 102,000 to its credit.
But the biggest winners are not the UK's car makers but their Korean counterparts. A breakdown of the marques bought under scrappage show Hyundai's 12,747 total out in front, beating even Ford, which usually dominates UK sales. And if the Korean group's Kia subsidiary is added, the total rises to a whopping 20,119. Chevrolet, which is made by GM's Korean division Daewoo, adds another 1,106.
Scrappage has had some benefits for manufacturers in the UK, even if not as much. Vauxhall has sold 6,693 cars under the scheme, Nissan 4,572, Mini 1,556 and Jaguar Land Rover 52. Some even had to rehire staff laid off earlier in the year to help cope with the sudden boost in demand. Nissan rehired 150 workers at its Sunderland factory on a four-month contract, and Mini brought back more than 150 of the 850 people let go earlier in the year.Reuse content