Manufacturers accused of raising prices, government of VAT botch
18 May 2009

The government's scrappage subsidy scheme begins today - but risks being overshadowed by a series of disputes with the car manufacturers it is meant to help.

Under the scheme owners of cars and light vans registered before 31 August 1999, who have owned the car for at least a year will be able to scrap the vehicle in exchange for £2000 towards the cost of a brand new car from a particpating manufacturer.

The vehicle scrapped must have a valid MOT when the new car is ordered and must have a registration address in the UK. Full details of the conditions of the scheme are available by clicking on 'Car makers sign for scrappage'.

However, the manufacturers involved have become embroiled in disputes with the Department for Business, Enterprise and Regulatory Reform, which is administering the scheme.

There have been suggestions that manufacturers have cancelled special offers and raised prices in preparation for the scheme, in order to absorb some of the £1000 contribution they must make as part of the £2000 discount. The other half is provided by the government.

The motor manufacturers and dealers also claim that the exact details of how the system will work have not yet been finalised. As a result, Ford and Honda have already confirmed they will not be able to take registrations under the scheme immediately. You can read more on this by clicking on 'Ford and Honda delay scrappage'.

The government has asked the manufacturers to put in the £1000 for each car, but in the past incentives have been split with dealerships. Some car makers warn that on cheap cars their profit would disappear if they have to fund the full £1000, rather than splitting it with the dealership.

A spokeswoman for the SMMT, which is administering the scheme on behalf of the manufacturers, said: "Manufacturers say that on high volume and low value cars if they had to put the full £1000 in they wouldn't make any money."

Because the scrappage system differs to traditional incentives there is also a question mark over how VAT would now be calculated.

Revenue & Customs issued guidance as to how scrappage will work last week, and for VAT purposes, the manufacturer discount of £1000 is paid to the purchaser of the car, who is not a customer of the manufacturer, but of the dealer. This has led to suggestions that some manufacturers may delay taking part in the scheme.

In addition, an independent survey has suggested that the average new car loses £2000 in value in 88 days. As a result, critics say motorists would be better off trading in their old car and buying a used car that has already depreciated.

However, President of the AA Edmund King has pointed out that the £2000 incentive can be used as a deposit to help car buyers get finance. He added that the scheme would "transform the chances of survival in a crash for thousands of car owners" whose current old cars offer substantially less protection than newer models.

But Friends of the Earth executive director Andy Atkins said the scrappage scheme was "a lost opportunity".

"A well-designed scheme could have played a limited role in cutting emissions from our roads," he said. "But, unlike some other countries, the UK scheme doesn't prevent motorists part-exchanging an old, small model for a brand-new gas guzzler."

Business secretary Peter Mandelson visited a car dealership today to launch the scheme and said there has been a positive response from the industry.

"I am delighted by the response of the motor industry. Thirty-eight companies have signed up - all the major UK car manufacturers and a number of other companies. This means more choice for consumers and a boost for British brands. 

"The scheme has been met with a flood of enquiries from customers. It will provide a boost to the industry and kick-start sales." 

The confirmed list of manufacturers who have signed up to take part are: Allied Vehicles, Bentley, BMW, Chevrolet, Citroen, Daihatsu, FIAT, Ford, Honda, Hyundai, Isuzu, Jaguar, Kia, Land Rover, London Taxis International, Mazda, Mercedes Benz, MG Motor, Mitsubishi, Nissan, Perodua, Peugeot, Porsche, Proton, Renault, Rolls Royce, SAAB, SECMA UK, Subaru, Suzuki, Toyota, Vauxhall, Volkswagen, Volvo, Koelliker UK Ltd, Iveco Ltd, Chrysler and Renault Trucks UK Ltd.

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