Now that more details have come out, I agree with most that this really isn't going to make too much of a difference, and may in fact make things worse. It helped increase sales in Germany fairly substantially at the lower-mid end of the market, but the rules there are subtly, but importantly different:
-Government gives the full 2500 EUR to the buyer, meaning that car companies can continue to offer their own discounts (in the UK the car companies have to pay £1000 of the £2000 total)
-Applies to all cars over 9 years old (in the UK it is over 10 years)
-Can be used on towards cars less than a year old (in the UK it is brand new only)
Critics against the plan have stated a number of issues, some of which are already prevalent in countries where the scheme applies (I realise some of these have already been touched upon in this thread!):
-Companies that rely in fixing and maintaining older vehicles will see business drop as older cars are taken off the road. This also includes parts companies, who are hit twice - first of all because there will be fewer old cars for their parts (smaller market), and secondly because of the influx of used parts from scrapped cars (more competition). Karmann has already filed for insolvency (of course this cannot be wholly caused by the scrap scheme, but it could be a taste of the future) and a number of UK car parts firms are already struggling before this (Lucas anyone?). Ironically the garages least likely to be affected by a drop in the number of old cars to repair are those owned by dealerships, as they usually service cars less than 10 years old - indeed they may benefit in the medium term once the new cars are out of warranty.
-Environmentalists claim that more environmental damage will be caused by the 'waste' generated from scrapping cars prematurely and replacing them, than the positive effect by having proportionatly more cars with lower emissions. The environmental benefit claim by the government is a moot point anyway. Gone are the days when cars lasted no more than about 10 years - most cars designed in the 90's were built to last far longer than their 70's/80's predecessors, and certainly longer than 10 years. With better drag coefficients, and techs such as catalytic converters, fuel injection on petrol as standard and common rail injection on diesels appearing in the 90's, cars were already becoming far cleaner and more efficient. Is an 'S' or 'T' reg really a banger? If cars over 10 years old were so bad that they needed to be scrapped, wouldn't there be fewer of these cars on our roads? Maybe car companies are a victim of their own success in improving reliabilty and build quality? Of course the government knows that these cars are fine - if they weren't, people would be out buying new(er) cars anyay. Also, by setting the bar at 10 years, which as I said, is too early for a lot of well-built cars, they are ensuring that the scheme will cover a large enough proportion of road users to still be effective. I know the government never claimed that the main reason behind this was the environment, but let's not kid ourselves, the environment can in no way be used as a justification for this.
-The scheme may actually lead to an increase in prices of new cars. The car companies are still losing money from over-production over the last couple of years, and many are now in debt, and being charged interest, which now becomes a factored cost when working out prices and profit margins on new cars. They can't afford to give cars away, as for many these unsold cars represent most of the remaining capital in the business. There will be a level below which they cannot afford to sell a car. Due to a drop in sales, most companies were probably pretty close to this margin already. Being asked to put a £1000 incentive for some new buyers will be too much for some, and they will raise their prices accordingly to absorb the cost. The guy who's just srapped a 10 year old car will still be £1000 'better off' (I use the term loosely) thanks to the gov money, so it's not too bad for him. But what about the guy who has a car which is 3 years old, and is looking for a new one? Suddenly he's forking out £1000 more than he would have, and now may not buy new at all. He may keep his car a bit longer, or even go for one nearly new to save some money, which in turn will lead to:
-The price of used cars may increase. Partly because of the reason above (more demand for the same number of cars) but also because there are fewer used cars at the bottom end of the market, because some have been scrapped earlier than they would have been. Ironically, this may actually mean that more older cars may be worth more than the £2000 saving, which will make the scheme less effective (could this feedback loop be deliberate?)
-Is it really wise to promote a large expenditure for families, when we are all being told that we have over-borrowed in the last decade? The government hopes that increasing lending will help the country out of recession. The scheme may create more demand for credit from those hoping to borrow against new cars, and I'm sure that the car company's finance department, or a risky loans company will be happy to help. The problem is that job losses are likely to increase on the way out of the recession - and bad debts on the cars because of this may drag recovering car companies down with them. Plus, I thought we were all being told that we've borrowed too much already, and it's time to pay it back?
-Most cars over 10 years old are likely owned by households who can't afford a new car unless on finance (are unable to buy new) or as a second car (are unwilling to buy new)
