Car Salvage and the new scrappage scheme

It is interesting to speculate on the impact the new government scrappage scheme will have on the availability of obtaining used car parts online.

The budget that will be presented by the chancellor Alistair Darling is quite likely to announce a scheme that will offer a cash discount to purchasers of new cars if they scrap their old ones for the car parts. It is thought that £2,000 will be made available. The car that is to be scrapped will have to be at least nine years old. The scheme is not original, as Germany has already introduced a similar one. The German scheme has been very successful at boosting new car sales, and the monthly increase in car sales is almost forty percent.

Surprisingly, the government has calculated that it will not cost the taxpayer too much money. This is because that although it will cost around £560 million a year to run the scheme, they will get back extra VAT charges of £400 million on extra sales of new cars. As currently new car sales are down by about 30 percent compared to last year, the scheme has generally been welcomed. No doubt it will assist the car industry and save manufacturing jobs.

The scheme is likely to have a distorting affect on the market, depending on the precise rules. For instance a car owner with a say five year old car which has a value of £5,000 and who wishes to purchase a new car for £15,000 is quite likely to sell his £5,000 car, then buy a really old banger for say £200, which he will then scrap to get £2,000 off the new car.

On one hand this is likely to increase the price of really old cars as they may now be used speculatively, and on the other hand as far more cars are likely to be scrapped in the near future, the price of parts bought from car salvage companies might well decrease. Buying used car parts online is already very easy, and it is likely to get even easier.

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