Scrap this idea!

Media reports today suggest that the Treasury is blocking "Lord" Mandelson's idiotic scheme to boost UK car sales by offering people grants for scrapping old ones. As the Aussies would say, "Go you good thing!"

I've posted on this before, so forgive some repetition. The basic, fundamental, irremediable flaw with this idea is simple: about three-quarters of the cars made in the UK are exported, while a similar proportion of the cars bought in the UK are manufactured elsewhere. The "leakage" from a UK scrappage scheme would be huge, since of course it would be illegal to have a scheme that applied only to locally made vehicles. A scrappage scheme might benefit the dealers (and of course we all love them), but it would do very little for the manufacturers.

The UK industry is pointing to the success of an existing scrappage scheme in Germany. It's true that car sales in that country have recovered, but it's also true that the vast majority of cars sold there are made in Germany. However, it's also true that the scheme is distorting the market. BMW and Mercedes are seeing very little benefit, because of course the kinds of buyers who hold on to their cars for long enough to get the scrappage grants (9 years) are not the kind who buy expensive wheels. What's more, there's some unusual "leakage" in Germany too. Once you get your grant, there's no stipulation you have to spend it in Germany, so a lot of people are buying their new car in Poland, where zloty weakness has resulted in lower prices in euro terms.

Before Mandelson floated his trial balloon about scrappage, UK car sales were down about 20% year-on-year, not a bad outcome by current world standards. In the past month, however, that's deteriorated to more than a 30% fall. The industry says, not unreasonably, that uncertainty over the scrappage scheme has led some buyers to delay their purchases. Seems to me that if the Government clearly and unequivocally rules the scrappage scheme a non-starter, those folks will return to the showrooms, giving sales a boost without any cost to the Treasury. That sounds like a good deal to me, and there's the added benefit that Mandelson might resign in a fit of pique. I mean, he's long overdue, isn't he?