The beginning of April 2009 was a pretty miserable time in the British car industry. The Lehman Brothers bank collapse in 2008 had triggered financial meltdown on a global scale. Other financial institutions were at risk of collapse and car buyers – both fleets and private – kept their chequebooks in their pockets.  As a result, car sales plummeted for a straight year. During the first three months of 2009, new car registrations were down by 30%. Total UK vehicle production was 57% lower than the year before. Showrooms were deserted and pens were poised over P45s.  No one could have predicted that just a month later – 10 years ago this week – several dealers would be forced to install ticketing systems to manage the crowds in showrooms.  The difference was scrappage, a scheme that was designed to keep the car industry afloat and get drivers to swap into less polluting, safer cars. It was controversial at the time and still causes resentment today. It propelled some manufacturers to stardom and sent nearly 400,000 cars, including some bona fide classics, to the crusher.  How did it come about? And what effect has the scheme had on the market since?  Convincing the government The main proponent of the scheme was the Society of Motor Manufacturers and Traders, whose chief executive at the time was Paul Everitt. “Car sales were an important barometer of the economy and, month after month, registrations were going down,” he says. “There was a strong political will in Gordon Brown’s government to do something which would change the ‘weather’. The news talked of an impending financial collapse, and no one knew where the bottom was.”  Consequently, there were meetings organised between industry CEOs, the SMMT and the government’s business secretary, Peter Mandelson. The industry pointed to the successful scrappage scheme in Germany and put a case for how it could work here in the UK.  One of the industry executives Everitt took with him was Bill Parfitt, then chairman and managing director of GM in the UK. Parfitt recalls: “Mandelson was polite but not convinced at first. So I came at it from the manufacturing point of view as the slump was really hitting the component suppliers. I was nursing about six or seven of them at the time and if one went down it would have been a major problem for everybody because we’d have had to stop production and re-engineer the parts using a different supplier. That can take months.  “Mandelson argued that scrappage would only suck in imports of cheaper small cars and people like Kia and Hyundai would gain a foothold in the market. He was right, of course, but I showed the upside with a series of sums showing what they would get from VAT and road fund licence, and also what would happen if a component company went bankrupt taking other companies with them. It was the supplier argument which won the day.”  The scheme was finally announced in chancellor Alistair Darling’s budget statement, and although it had been widely expected, the actual details had been a closely guarded secret. The deal Darling dished up was not as generous as the German government’s as it gave a £2000 discount to the consumer but only half would come from the government – the other £1000 had to be given up by the manufacturer.  Parfitt also worked out the mechanism that would ensure no one could cheat the system. Automated checks between government departments made sure the scrapped cars had a valid MOT, had been owned by the purchaser for more than 12 months and – crucially – were issued with a certificate of destruction to ensure they never returned to the road. Without it, the dealer wouldn’t get his money.  This caused a flurry of calculator tapping in car company HQs as finance directors attempted to see if they could still make a profit.  Showroom boom One maker that was prepared was Hyundai, whose managing director at the time was Tony Whitehorn. He explains: “At the beginning of 2009, we heard that scrappage was likely so I asked my German colleagues for advice, as they’d done really well with it. They said you needed stock. So I took a risk and ordered 7000 i10s – I usually ordered 1000 a month. The factory phoned up and assumed it was a mistake.”  When scrappage was announced, Whitehorn was ready: “We had it all pre-planned based on several likely scrappage scenarios: price lists, press releases, everything. All the media wanted to talk about it and customers wanted to place orders, but none of our rivals were ready so they were turning down TV interview requests and customers. We took one of our ready-made plans off the shelf and we scooped up the buyers and got all the publicity.”  Hyundai’s headline was that an i10 Classic could be had for £4995 after the scrappage discount, or £85 a month on finance. Hyundai sold all its first shipment before the boat had even docked. By the end of 2009, the brand had sold 39,000 cars under the scheme, more than doubling its 2008
Origin: How the scrappage scheme sold 39,000 Hyundai i10s