Under the UK scrappage scheme, a 2000 incentive is paid to motorists who scrap cars registered before the 31st august 1999 to buy a new car. half of the money is paid by the government and half by the car industry. The scheme will run from mid may 2009 to march 2010, depending on its fixed government budget of ï¿½300 million runs out sooner.
The government have announced earlier this year its car and van scrappage scheme. The motorists who will scrap their 10-year-old cars will get a ï¿½2000 (or more) incentive toward buying a new car. The government will pay ï¿½1000 pounds and participating manufacturers will contribute ï¿½1000 pounds or more if they choose to do so (Rutherford, 2009).
The new car scrappage scheme has big impacts. Not only on the new car industry or on financial status of buyers, but it has impact on several other industries in the UK. This essay will firstly display and show the effects of the government’s new scrappage scheme on the market for new cars, supported by diagrams and some details. Then the essay will show the impact of the new scheme on the second hand car market, the car repair market and the scrap metal market. The essay also will show if this policy will have a beneficial or detrimental effect on the environment. Then will illustrate the advantages and disadvantages of the UK car scrappage scheme and concluding whether if it is a good policy or otherwise.
The market for new cars:
Looking at the economic theories, we can see that when there is a change in price there will be change and demand and therefore change in supply, In other words, when price increases the quantity demanded will decrease. And when price decreases the quantity demanded will increase. But the movement will be along the demand curve not movement of the curve itself. Here we have a contribution of ï¿½2000 pounds, which will mean that eligible customers will get a ï¿½2000 discount on the value of a new car. According to demand theory, if the price drops, the quantity demanded will rise. Therefore, as prices of new cars dropped by ï¿½ 2000 the demand on new cars market will increase.
The diagram below shows how the demand on the market of new cars will react after having the ï¿½2000 pounds scrap scheme:
From the diagram we can see that the quantity demanded was 10000 unit (or cars) when the price of a car is ï¿½ 10000 pounds. After the government scrap scheme, the price has decreased to ï¿½ 8000 pounds and the quantity demanded has increased to 13000 unit (or car).
The market for second hand cars:
Second hand cars are substitutes to new cars, and according to the theory of demand and supply. If there is a change in any factor other than price, that will cause a change in demand and also a shift of the curve because second hand cars are substitutes to new cars. Having said that, the government is offering ï¿½2000 pounds scrap money toward buying a new car. The demand on the market of second hand car will fall, causing a drop in prices of used cars. The diagram below will show the effect of the government’s scarp scheme on second hand car market:
The demand curve which represents the demand on second hand cars has shifted to the left because after the government has introduced the new scheme, many people started to buy new cars, and because new cars are substitutes of second hand cars the curve of demand on the second hand cars has shifted to the left causing a lower demand and lower quantity demanded.
The effect of the government’s cars scrap scheme on the car repair market:
Although that the government’s new scrappage scheme has helped many people to buy cheaper new cars, and also has helped many industries to gain high profits and to be a lot more active after the rescission. The government scheme has motivated more people to scrap their old car which are often break down and often needed repair. The repair market has been hit. Because fewer people come to repair their old cars and instead they just scrap them and get a ï¿½ 2000 pounds toward their next new car. But on the other hand, in next few years repair market will gain it power again as more cars will be aging. But for now, new cars will most likely be repaired by the dealers.
The diagram below shows the effect of the government scrappage scheme on the cars repair market:
The effect of the government’s scheme on the scrap metal market:
The government’s car scrappage scheme will have a big effect on the market of scrap metal. The government have set ï¿½ 300 million pounds for about 300,000 scrap order in the period between May 2009 and March 2010. And as far as 28th September 2009 there were 227,750 orders have been placed already according to the BBC (2009). So in a period of 4 months there were almost 230,000 cars to scrap, which will mean there is a lot of scrapped metal which will hopefully lead to push the scrapped metal prices down in the local or the national market. However, it maybe increases the scrap metal exports to other countries such as china.
The graph below show (A) national market how it might be affected. and (B) the exports to other countries.
P National market
P Exports to other countries.
Consider whether the policy is likely to have a beneficial or detrimental effect on the environment:
As it’s been claimed that up to 85% from the car’s scrap is recyclable, this is good. Being able to Recycling 85% of the old car is better for the environment than building a new one without using any recycled materials. Also, the government is encouraging people to buy new cars which produce fewer emissions and consume less fuel. According to guardian.co.uk (2009) “The government’s car scrappage scheme has had a surprisingly positive environmental effect. Motorists buying new cars through the scheme, which was introduced at this year’s budget, are opting for greener and smaller models than the average new car buyer, industry figures reveal”.
And they add “Scrappage buyers were also three times more likely than average to buy the smallest class of car – “minis” such as the Smart Fortwo – and a third more cars bought through the scheme were larger “super-minis” such as the Hyundai i10. New cars bought through the scheme had average CO2 emissions of 131.1g/km CO2, 27.4% below the average CO2 (181.9g/km CO2) of the scrapped cars.” (Guardian, 2009).
Outline the advantages and disadvantages of the scheme and consider whether, on balance, the UK car scrappage scheme is a good policy:
There are some advantages in the new cars scrappage scheme. However, the government’s new scheme has few disadvantages too. But I will concentrate the attention more on the Benefits of this project. For instance, the government announced that between May 2009 and March 2010 they will help 300,000 people to scrap their old cars and get a ï¿½ 2000 cheaper new car. That means more people will have better and more modern cars.
Also recently the government have declare that they will invest an extra ï¿½ 100 million pounds which will hopefully help another 100,000 car to get scrapped and their owners get a ï¿½ 2000 toward a new car which will make a total of 400,000 cars being scrapped and ï¿½ 400 million being spent by the government and 400,000 new cars in the streets. (direct.gov.uk, 2009) And if 400,000 new car extra being sold means that the policy helped British (and European) manufacturers to sell more cars and gain more profit after the crisis. Also means that they will secure more repair jobs for those people who bought new cars in the upcoming months and years. And one of the big advantages is that by replacing 400,000 old cars by new cars we reduce the gas emissions, which are the main cause of the global warming.
To sum up, in my opinion, the government’s car scrappage scheme has been a successful project and it helped many people to replace their old cars with new better once. Also it helps many industries and car dealers to go out of rescission. Even though that some other firms have suffered from it, I would say that it is a vital project, good for car buyers, car dealers and other attached firms and of course first of all, it is good for the environment.
* BBC, 2009,Scrappage scheme to be extended,[online]updated 28th September 2009, http://news.bbc.co.uk/1/hi/business/8278679.stm
* Direct.Gov, 2009. The vehicle discount scheme- money off your new vehicle[online] available at 11th November 2009, http://www.direct.gov.uk/en/Motoring/BuyingAndSellingAVehicle/AdviceOnBuyingAndSellingAVehicle/DG_177693
* Rutherford, M. ,The telegraph, 2009, Scrappage scheme explained,[online] updated 15th May 2009, http://www.telegraph.co.uk/motoring/news/5330112/Scrappage-scheme-explained.html
* Vaughan A,2009 ‘Car scrappage scheme sparks switch to greener vehicles, The guardian [ internet] 22nd October 2009, http://www.guardian.co.uk/environment/2009/oct/22/scrappage-scheme-green-cars [accessed 09/11/2009]