All credit to German, French and Italian governments for introducing various incentive schemes that pay owners of older cars to trade them in for scrap. But, please don’t run away with the idea that belatedly introducing a similar scheme here in the UK would provide similar benefits as those seen in Continental Europe. Why? Historically over the past ten years during more typical automotive markets, it is true to say that the majority of cars produced in the UK [around 75 per cent] have been exported. For the most part, that means cars purchased by British drivers and companies tend to be imported vehicles suggesting the significant benefits of a UK government sponsored £2,000 trade in for cars in a range of say nine to eleven plus years old would primarily benefit the likes of Renault, Peugeot and Ford that produce no cars in Britain. True, British consumers do purchase some of the cars produced by the likes of GM, Toyota and Honda here in the UK so there would be some small benefit. The same could be said of engine and component makers. Ford still manufactures substantial numbers of engines at Dagenham for export and driveline component manufacture GKN would clearly benefit if a UK incentive scheme managed to boost sales particularly at Jaguar and Land Rover. The point though is that while the German economy has enjoyed a dramatic 40 per cent monthly rise in car sales since the introduction of a EUR 2,500 scrapping incentive scheme last month does not automatically mean that similar economic benefit can be expected here in the UK.
If the above proves to be right, one may easily argue that the majority of benefits from such a scheme would be enjoyed by Continental European car workers as opposed to their British counterparts. For UK workers and the various subsidiary operations of the foreign owned car plants in the UK to benefit requires not only a full Europe wide incentive scheme but also similar schemes across Asia and even the US. That isn’t about to happen on anything like the scale necessary. The other issue here is that while any incentive scheme proposed by the government is almost bound to produce an uptick in UK new car sales it will also be helping to create a somewhat artificial market. By this I mean simply that encouraging consumers to buy cars now surely means that they won’t necessarily be doing the same in 2010 and 2011. If right, that could have impact on decisions by parent companies of UK car manufacturing subsidiaries on future investment. OK, so over a five to seven year cycle it should balance itself out and I have already made mention of the predominance of UK car production for export. Taxation and incentives to retain plants in the UK apart, what the rest of Europe and Asia does to incentivise consumers is probably of far more importance to industry chiefs than anything that the UK government might choose to do to boost domestic sales. Another argument worth noting in this particular debate – even if somewhat more difficult to prove in such an unprecedented market collapse as this – is that US car manufacturer incentive schemes that became the norm in the post 2001 era could probably made the bad situation that is very visible today significantly worse. Why? Simply because the huge competitive discount offerings from the big three indigenous US based car manufacturers let alone from the Japanese transplant operations plus various zero interest financing incentive schemes offered since 2001 persuaded many consumers to actually buy a new car that they didn’t actually need. If so, one might well say that even if they could afford to buy a new car now and that they could actually get the finance they don’t actually need to buy a new car for some considerable time. After all, in difficult times and despite massive incentives, buying a new car is a huge risk if you happen to be living in fear of redundancy. Added to this argument is the likely fact that the fall back in the price of oil, despite the recent small pick up in price of the black stuff, has probably removed part of the incentive to purchase more fuel efficient cars.
Clearly, if the UK government goes ahead with a similar incentive scheme there will be some beneficiaries. UK carmakers should be able to more quickly shift the already existing stock of cars stored at various sites around the country. In theory that should mean that currently mothballed production plants could get back into operation in the autumn and winter of this year. The real winners of any such a scheme would clearly be the struggling band of distributors and dealers but remember that whilst important, fewer jobs are involved here that in the manufacturing and component industries.
Arguably it would be right to say that compared to help that the US, German, French and Italian governments have provided to their respective car industries that the British government has so far done little or nothing to help the struggling domestic car industry. OK, so using the good offices of the European Investment Bank, £340m has been approved for Jaguar Land Rover and Nissan is also to get some help. The reality though is that despite plenty of waffle and promises UK Trade Secretary, Peter Mandelson has done virtually nothing to help this struggling yet vitally important industry that across the piste employs so many jobs and that from an economic angle is so important for exports in that it helps offsets the overall automotive industry trade deficit. True, struggling as the nation is with the huge rise in government borrowing requirement, one may argue that we simply cannot afford to provide help for this industry on the scale of others. So be it but the government needs to remember that when the UK car manufacturing industry is gone it won’t be that easy to get it rebuilt and it also needs to be aware that by failing to help it is kicking the very people that probably voted it in.
