Doin' that scrapyard thing

There's a report in today's Times that the UK government is thinking of giving owners of older cars cash incentives to scrap them and buy new ones. I haven't seen the story anywhere else in the media, though, so maybe the Times is wrong about this. I certainly hope so.

Supposedly the plan would involve setting up a series of government-approved scrapping stations across the country (see?? job creation!!). People with cars nine years old or older could take their car into one of these stations and receive in exchange a certificate to show the vehicle was off the road. This certificate would have a cash value of £2000 if taken into a car dealership and applied to the purchase of a new car.

What effects would such a scheme have? Well, it would put a floor of £2000 under the resale value of any car eight years old or older, for one thing. If you're looking for an older car to provide cheap, basic transportation, you're going to be out of luck. And it would lead to a stampede into the nation's garages and barns to get all the old bangers off their cinder blocks and down to the nearest scrapping station. (Or some combination of the two. If you can't afford a new car but you've got some old heap in the shed, I'll buy it from you for a few quid and take it to the scrapyard to collect my £2000 reward).

But would this scheme reduce the price of vehicles and get people buying again? There's been a proliferation of car ads on the television and in the press in recent months. Makers and dealers are desperate to shift the metal. So desperate that they're actually cutting prices, in many cases by more than £2000 per unit. It's working, too: UK car sales have fallen by about 20% in the past year, but that's less than half the decline seen in the United States. What odds would you give on those dealer discounts surviving if the government steps in with a £2000 bribe of its own? (Don't think too hard about this one!)

I haven't even mentioned the fact that much of the benefit would seep offshore, since that's where so many of the UK's new cars come from, or the likelihood that the £2000 freebie might persuade people to buy larger cars than they otherwise would, thus offsetting the supposed environmental benefits of the scheme. I could also point out that whizzes like this only alter the time profile of car demand: if people buy a car this year in response to this scheme, they won't be buying one next year. What does the government do then? These are valid points, but they're not as important as the fact that it's plain nuts for the government to be throwing money around like this (more money, that is; they've already cut VAT) when there's every reason to think that the car makers are doing a pretty good job of dealing with it themselves.

An automotive consultant is quoted in the Times story as saying that the scrappage scheme is "a no-brainer". He's right, but not in the way that he means.