Of Bangers & Mash

31st August 09 – Of bangers & mash

France, Germany and then Italy were the first off the blocks closely followed by the US. Indeed, it is putting bangers & mash on the menu that has been a major contributory factor to the easing of their economies out of recession. Bangers in this sense are of course old cars and mash is what has happened to them.

For the UK, albeit late to the party, sales of new cars increased in July 09 for the first time in 15 months. Also, the average price of a used car has recovered to levels not seen since the start of 2008. Underpinning the turn-around has been the European style scrapping scheme which the Americans, with their knack of capturing events with a memorable turn of phrase, call “cash for clunkers.” A car of more than 10 years clunking (7 in Germany) and that has been owned by the person trading in for at least 12 months can be exchanged for a new one at a discount of £2,000.

Trevor Finn, the chief executive of Pendragon – one of the largest car dealerships in the UK, said with some magnanimity “I started off being sceptical about it but was proven wrong. I didn’t think that the amount of money being offered would be enough to tempt people.” And then the second surprise “I thought the target audience for us was students. But it is not – it has been mature, retired people saying I’ll buy a small car.”

The funding of £2k comes from the motor industry and the Government 50/50. With £300m in the state pot, 300,000 sales can be funded and as at today, 155,000 orders have been taken nationwide and it looks like the quota will be used up by Christmas 09.

And now for the clever bit. Taking an average car in the programme (a small hatchback diesel) the Government gets a VAT recoup of about £1k on every sale. Self funding can’t be bad at a time when tax revenue on a broad front is dropping like a stone. Or a mashed-up banger.