Struggling car firms call for green incentive scheme

The government was yesterday facing fresh calls for the introduction of a "scrappage scheme" to encourage motorists to trade in older polluting cars for newer models, after figures revealed sales of new cars last month dropped by nearly a third on last year.

Sales of new cars during March, traditionally a strong month for the industry, fell 30.5 per cent to 313,912 cars, according to figures from the Society of Motor Manufacturers and Traders (SMMT), prompting fresh calls for a government-backed incentive scheme.

Paul Everitt, SMMT chief executive, led the renewed push for a "scrappage scheme" to be included in the upcoming budget that would give motorists about £2,000 to swap their old vehicle for a new, greener model.

Supporters of the plan argue that it would serve the dual purpose of providing a boost to the ailing car industry, while encouraging drivers to switch to newer, cleaner models. However, some green groups have argued that a sector-wide scrappage scheme would simply act as a bailout for the industry and that any incentives should be targeted more effectively to increase sales of the most fuel-efficient vehicles.

"The fall in the market shows that government needs to do more to boost confidence," said Everitt. "A scrappage scheme will provide the incentive needed and the evidence is clear that schemes already implemented across Europe do work to increase demand. The UK is the only major European market not to implement such a scheme."

Figures released this week by consultancy JD Power showed that across Western Europe where such schemes had been introduced, car sales fell by 7.2 per cent, a markedly slower rate of decline than previously.

The analyst firm said scrappage schemes in Germany, France and Italy appeared to be improving demand, though a similar initiative in Spain did not seem to be working. It also warned that such schemes were only a short-term measure, noting that " all past scrapping incentives in Europe have led to market decline after the point of their removal".

The SMMT estimates that 280,000 Britons would take advantage of a scrappage scheme over an 18-month period, resulting in a net cost to the government of £150 to £160m. It added that if measures to increase support for the motoring industry are not introduced soon, "green collar " automotive jobs will be lost to Europe as scrappage schemes create increased demand for their skills on the continent.

The government is reportedly giving serious consideration to the proposals. Business secretary Lord Mandelson said in February that his department was examining the effect of the measures on the continent, and is understood to be sympathetic to the industry's concerns.

However, there are also concerns within the Treasury that any scrappage scheme would effectively subsidise European car-makers as much as it benefited UK employers.

In related news, the European Investment Bank's Board of Directors today approved loans to European-based car makers worth a total of €866m to help design and build cleaner cars with lower CO2 emissions.

The sum adds to the €3.6bn in loans approved since last December for European car and truck makers.

The loans include €400m to Nissan to develop and build more fuel-efficient vehicles in the UK and Spain, and £340m to Jaguar Land Rover to help cut vehicle emissions.