Britain's £320m gift to its car manufacturing rivals

Ministers launched the car scrappage scheme to rescue the British motor industry, yet relatively little is going to UK manufacturing, says Sean O'Grady

Who's been the biggest winner from the British Government's car scrappage scheme? The clear answer is car workers. Car workers, that is, in South Korea, India, France, Spain, Slovakia, Poland, Germany, China, the Czech Republic, Italy, Japan... just about anywhere but Britain.

Some 86 per cent of the vehicles registered under the scheme so far have been made abroad, and a generous estimate of the value of engines and other components made in the UK that find their way back here via foreign assembled cars and vans would still mean about £8 out of every £10 spent by the Treasury goes abroad. By the time the full £400m has been disbursed, some £320m will have gone to subsidise foreign car workers' jobs, and just £80m will have stayed in the UK.

The most spectacular contrast is between the £20m of taxpayers' money that has gone to the Hyundai/Kia combine, based in South Korea and which has no manufacturing, design or engineering presence in the UK; and the miniscule £241,000 that Jaguar and Land Rover have received, as a result of the sale of 52 Jaguar cars and 189 Land Rovers. Perhaps most poignant of all is the mere £22,000 that has gone to the Chinese-owned remnant of MG Rover at Longbridge, the last vestige of our old indigenously owned motor industry. Mini did better, with £1.5m, and Japanese makers such as Nissan, Toyota and Honda as well as Vauxhall also saw some cash.

Mike Steventon, from KPMG, points out: "The scrappage scheme in the UK has provided a much needed boost for car dealers, but has done very little to support UK manufacturing jobs. The vast majority of cars sold under the scrappage scheme are imported cars with the big winner Hyundai and Kia.

"UK car manufacturing is primarily focused on higher value, prestige brands and over 70 per cent of UK manufactured cars are exported. The scrappage scheme has provided a boost for smaller, low cost cars which are principally imported. Indeed approximately 90 per cent of cars sold under the scrappage scheme are imported and, as such, the scheme has done very little for UK manufacturing jobs."

The outstanding impact of the British cash for clunkers plan – and the German scheme too, where similar complaints have been heard – has been to propel Hyundai and Kia, once marginal brands in the British market place, into the premier league, at least temporarily, specialising as they do in the sort of value for money, cheaper products that are overwhelmingly the choice of scrappage scheme customers. Hyundai outsold Ford to top the retail sales charts in August (that is excluding company and fleet sales), which gave it a record market share of 5.6 per cent. Hyundai saw total sales up by 323 per cent on the year.

The Indian-made Hyundai i10 city car overtook the Vauxhall Corsa (made in Spain) to become the third best-seller in Britain, and the number one model among private buyers, an astonishing performance, and also a telling indicator of the coming industrial challenge from India.

"We are well on the way to making September the best ever month for sales in the company's history," said Hyundai UK's managing director, Tony Whitehorn. "Our dealers have taken on an average of 20 per cent more staff to cope with demand."

Announcing the extension of the scheme to the Labour Party Conference on Monday, the Business Secretary, Lord Mandelson, said: "Our car scrappage scheme has been so successful the money is running out ...so I am extending our popular car scrappage scheme with extra money for an additional 100,000 cars and vans. In support of our car industry too, this Government will stand behind Vauxhall workers in Ellesmere Port and Luton where the workforce themselves have been the main driver of change. And the same goes for Jaguar Land Rover too."

He relaxed the rules on the scrappage scheme for vans, raising the qualification criteria from 10-year-old to eight-year-old vans. That may be a reaction to the fact that only 25 Vauxhall Vivaro vans, made in the threatened Luton plant, have been bought under the scheme; plus another small number of Renault and Nissan badged versions. Only 200 extra Ford Transits, made in Southampton, have been bought.

Although the British car industry will also benefit to some extent from the scrappage schemes operating in France, Germany and elsewhere, the boost is again likely to be minimal. The British motor industry's problem is that relatively few of the type of smaller, cheaper cars usually purchased under these schemes are manufactured here, with only the Nissan Micra and Note and the Mini coming close. A "Buy British" clause would have run foul of EU competition rules, but critics say the funds might have been better spent on encouraging UK based firms to introduce green technology, as with the recent government grant to develop the LRX, the "Green Range Rover", or on the type of loan guarantees offered by Chancellor Angela Merkel's government in its successful attempt to protect threatened Opel jobs in Germany. President Nicolas Sarkozy ordered his nation's car makers not to spend a single euro outside France.

Still, hard-pressed UK makers are still grateful for the help the Government is offering. Trevor Mann, senior vice president for manufacturing at Nissan, said: "Demand generated through the UK scheme and similar initiatives across Europe has allowed Sunderland to re-hire 350 manufacturing staff on temporary contracts."

The scrappage plan, launched in May offers a £2,000 discount on new vehicles when they trade in vehicles that are more than 10 years old. It had £300m in funding, equating to 300,000 registrations. Of the £2,000, £1,000 comes from the car companies and £1,000 from the Treasury, who recoup some of the funding through VAT receipts. Around 100,000 cars have already been registered, and 227,000 ordered from dealers.