Car scrappage plan feels the squeeze of uncertainty

Ford and Honda block deals as confusion plagues £2,000 incentive scheme

(GETTY)

As any MoT inspector knows, the devil is in the detail when it comes to old motors. A runner that looks clean enough can, once it's been poked underneath with a screwdriver, reveal flakes of rust and bigger structural problems.

So too, it would seem, with the Government's "cash-for-bangers" scrappage scheme, which began yesterday.

Unveiled on Budget day last month, the shiny new policy started to show early signs of metal fatigue. While the Business Secretary, Lord Mandelson, turned up at a Nissan showroom to promote his "wonderful bargain", at least two other major players – Ford and Honda – were driving the scrappage scheme into a thick fog of confusion, ordering their dealers not to register any cars under the scheme, until arrangements over "VAT and other things", in the words of a Ford spokesman, were resolved.

After a meeting late yesterday, the Society of Motor Manufacturers and Traders declared that the car industry was "extremely pleased with the progress made" and that the outstanding issues would be "resolved shortly". HM Revenue and Customs would be helping to sort things out, apparently.

Ford said that the scheme had only been finalised at the last possible moment on Friday, which meant that it had not had time to approve contracts with its 550 dealers. The Ford spokesman added that he was hopeful dealers would be able to register cars in a few days, and that they would continue to take orders. Honda added that its dealers had also been told not to register any cars under the scheme until there was "clarity".

Fiat said that it had never, contrary to reports, suspended deliveries of its products, and that it was backing the scheme in any case – but it did also have "issues over the clarity of the actual processes of the scheme".

Much awaited, the scrappage scheme is available to owners of cars 10 or more years old who buy a new vehicle or one up to a year old. A subsidy of £2,000 is funded equally by the industry and the taxpayer. Scrappage will last until the end of February 2010, or until the £300m government funding runs out. The confusion includes: whether VAT, now at 15 per cent, is added to the pre- or post-discount price of a car; how the £1,000 borne by the motor trade will be divided between franchised dealers, mostly independent of the big car firms, and the manufacturers; and how that division will affect the VAT position.

A Business Department spokeswoman argued that the Government had made it quite clear that the scrappage scheme agreement was between the Department and manufacturers – and not between manufacturers and dealers – and that VAT is added to the price of a new vehicle before the £2,000 reduction is made. She commented: "On 1 May we issued legal contracts... 38 manufacturers have signed contracts with the Department which set out clearly that manufacturers provide £1,000 and the Government matches it."

Despite misfires on some cylinders, the scheme is running smoothly for many. Mark Raven, communications director for Citroën, declared himself "happy all day" with the scheme, having effectively pre-empted the official scrappage with a £2,000 discount effective from 1 May, pushing Citroë*sales up 30 per cent. Mr Raven confirmed anecdotal evidence from other companies that older cash buyers were making most use of the scheme.

What to look out for: Top tips for buyers

*Don't forget that the £2,000 discount on a brand new car could be wiped out by depreciation; a nearly-new model might be a better prospect

*If you want to be patriotic, opt for a Nissan Micra or Note, Mini, or Honda Civic among the smaller cars

*Some manufacturers discount heavily all the time, and dress-up routine deals as "scrappage discounts" – so check what the deal might be WITHOUT a scrappage trade-in

*Korean makers Kia and Hyundai offer the longest warranties

*If you'd like a UK-built Vauxhall Astra, wait a bit for the new version

*Consumer watchdog Which? has found some remarkable discounts: £3,226 on a BMW 1-Series, £2,339 on an Alfa Romeo MiTo and £2,216 on the new Suzuki Alto