Nov 10 2009
Cash for clunkers helps overseas car makers
Today’s balance of payments figures for September show a surge of car imports as people rushed to take advantage of the public subsidy.
Was this really what Gordon Brown had in mind? He used to ponder the balance of payments figures in opposition and make a campaign out of all the deficits. Now we live with a permamently large deficit and that apparently is no problem. Today’s figures remind us how government intervention can have perverse consequences – he seems to have stimulated the French and German industries rather than our own.
28 Responses to “Cash for clunkers helps overseas car makers”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
This was hardly unforeseeable given that the scrappage scheme mostly boosts sales of small, cheap cars – the kind that are mostly made abroad. If you are paying £7,000 for a cheap car, a subsidy of £2,000 is a lot. If you are paying £25,000 for a premium car, a £2,000 subsidy is a minor factor. What’s more, the kind of people who were driving 10 year old cars were hardly likely to be able to afford big/expensive new ones.
JR: “Was this really what Gordon Brown had in mind?”
It really doesn’t matter what Gordon Brown had in mind. God knows I am no advocate of Gordon Brown, but he could not under European Union rules provide cash for ‘clunkers’ to cars made only within the United Kingdom.
He had to subsidise German & French manufacturers. Which is in fact entirely in the spirit of the European Union.
Now was ‘cash for clunkers’ a good idea?
No, it will have removed second hand cheaper cars off the market – thus removing afordable transport from the poorer in society.
It will have pulled forwarded demand into the present – the very phenomena that is causing our current problems today. Vehicle manufacturers will still have to cut back production only now, the dip in demand in the comming months will be more severe than it otherwise would have been.
Altogether, a stupid policy, implemented by a stupid government, partly justified on the grounds of a stupid environmental policy.
Thus we are badly governed these days.
I am sorry if this appears pedantic but the removal or reduction of a tax is not a public subsidy, it is a natural state of affairs.
I’m used to Labour claiming that by not taxing every aspect of my life, they are in some way ’subsidising me’ I would be forever grateful if you did not start this.
“Today’s figures remind us how government intervention can have perverse consequences – he seems to have stimulated the French and German industries rather than our own.”
As well as destroying the second hand car market, thus denying poorer people the opportunity to get their first car; or force people to pay more for a car than they would otherwise have had to do.
Ignorance of the broken window fallacy by the gov would be amusing if they had to suffer for the consequences of their decisions. Unfortunately, they don’t. We do.
The question I’ve been asking myself is whether or not the UK will default on its debt obligations. I think she will default.
Others are now starting to ask the same question, “Which big country will default first?“.
I appreciate that there are times when talking about debt default would be highly irresponsible for a senior politician; however, there are times when not talking about debt default would be highly irresponsible.
I hope that you’ll not let us down.
I don’t know, but I can well imagine that subsidising locally manufactured cars only would be illegal.
It’s also worth bearing in mind that the government takes 15% VAT on new car sales and a typical new car costs at least £10,000 so they are actually making a profit on the deal.
The “right” way to stimulate the economy is to remove the tax burden and as much regulation as possible. Of course, both those options would also be illegal under EU law.
Ah but it is not all subsidised John.
He giveth you £1,000 after jumping through hoops.
He taketh Vat @15% (at the moment) on the one you have just bought, more than £1,000 in many cases.
He also taketh showroom tax, announced this year, due to come into force next year.
The manufacturers also cough up £1,000 after also jumping through hoops and filling in lots of forms.
The carbon emissions of making a new car are somewhat greater than keeping the old one going in many cases. So more legislation required to reduce such emissions, more civil servants required to write and monitor all of these schemes.
The reason why cars are being imported, is because what is in demand are not being made here.
The result of the above policy was as plain as the nose on your face, but our masters did not look in the mirror, so could not see it.
You will be telling us next that there is a new car sales slump when the scrappage scheme stops.
But then you would have recognised this, before the scheme was implimented.
That is what interfering with market forces, or subsidy does, it just moves the goalposts and distorts the market for a while, and delays the inevitable.
The Labour Government still do not understand it yet it would seem.
The irony is that cash for clunkers is not even a green policy. The energy required to produce new cars far outweighs the energy saved on the poorer fuel consumption of the clunkers retired early (especially as these are mainly used for low annual mileages).
Mark Parker – your sums are a little off. If you pay £10k for a new car, a “mere” £1304.75 of this will be VAT (at 15%). Now calculate in the inefficiencies in a subsidy system, and I’m quite sure that they are not making a profit. Rather, it’s just another way to spend tax-payers money.
However, in principle, you’re right about how to stimulate an economy. It would be much better to reduce tax and not pass all the money through a very expensive Government system. However, that doesn’t suit the greedy, prescriptive lunatics running this particular asylum.
You also touch on the argument about whether a subsidy that targeted “local” (British) manufacturing would be illegal. Turn the issue around – if the incentive was to keep an older car on the road, properly maintained, you could be sure that local mechanics and parts supply companies would be given the business. There could be no conflict with the dreadful EU, and those people who cannot currently afford to maintain their vehicles properly would have safer, more efficient and reliable transport. A broken car doesn’t run up all that fuel duty, and there’s no chance of a money-making camera photographing it to earn even more revenue….
Running older vehicles saves the resources required both to manufacture a new vehicle, and to dismantle an old one. Remember, cars made more than nine years ago were not as recyclable as those made now, and you expend unrecoverable energy in both processes.
This one was obvious from day one. It was simply a quick Mandelson move to buy some favours in Europe at a particular point in time. As it mirrored the Obama one in the USA it looked good in the tame media, but it was just another expensive cut and shuffle job at the expense of the UK taxpayer.
yep and lots of stimulation to indian and polish economies too
hyundia small cars coming from india
fiat small cars coming from poland and engines from india
and so on
what with all the non European nationals here with the confetti like visas of inter company transfer i wonder what brits are supposed to do?
Worth showing again: It’s still funny!
This can be summed up as the “Law of unintended consequences”. Unfortunately this government, and it predecessor, have acted in hasty and we all can repent in leisure
All the figures indicate that Cash for Clunkers did not help the US Auto industry, the environmnet or the economy. In reality, Cash for Clunkers did more harm than good. In addition to costing taxpayers $24,000 for every clunker, it took a lot of revenue from car repair shops and charity car donation.
Like everything else about Labour, it was just smoke and mirrors.
They’ve lost the plot, the cupboard is bare.
I was speaking to a car dealer recently and he said he and others in the trade were horrified at the quality of car that was being scrapped. Frequently it wasn’t the old polluting banger but a perfectly usable and reliable runner. He felt a much better system is to delink the purchase with the scrapping by simply paying owners to scrap older cars say 12 years plus. They could then go and buy a better car, which may not be new. Whether this helps immediate car manufacture is debatable but pollution would be reduced and the less well off motorist would be able to upgrade.
John,
At least it will keep jobs in the car dealerships, which, by definition, must be British jobs in Britain.
Don’t forget. We are a service industry based economy now. Not a manufacturing one!
I’m confused as to how this thing works. I read that DBIS give £1,000 to the manufacturer, who then give it to the dealership.
Why? If the money is paid to the manufacturer, why do they need to give it to the dealership (who presumably have to pay it back to the manufacturer to purchase the vehicle the consumer had ordered)?
Is this just a paper-shuffling wheeze that allows car dealers and car manufacturers to declare more revenue on their accounts by double-booking the subsidy?
Perfectly servicible cars going to scrap.
Hmmm. How environmentally friendly. And what about the spares industry ? Manufactured here ?
I’m paying super tax. I’m by no means wealthy, nor am I profligate. One foreign holiday in five years.
Super tax is why I’ve had to add my penneth to the credit bubble. It barely keeps my living standard above that of the benefit dependants living in similar accommodation next door to me.
All very demotivating.
The ‘cash for clunkers’ money is capped and will run out about February. So, in the first six months of next year we will have:
- VAT back up from 15% to 17.5%
- The ending of stamp duty concessions
- No more ‘cash for clunkers’
- The ending of QE
- Rising interest rates
These last two may be postponed until house prices have risen enough to cancel most of the banks’ liabilities arising from toxic assets, and make bank sell offs easier.
Then we shall see the true state of our economy – and it won’t be a pretty sight.
I will be contributing less to this site – I’ve been hogging it a bit recently. Also, I have to devote a lot of time getting myself back into employment at the age of 63 and getting my skills up to date.
I shall continue to read the blog, though. Many thanks to John Redwood and keep up the good work.
Small cheap cars:
The Brits decided a long time ago not to produce their own cars any more.
If Continental Europeans produce small cheap cars which Brits want to buy it is not a sin.
The sin is that manufacturing industry was phased out in Britain.
Of course, if we actually had a car manufacturing industry, things might have turned out differently.
As it is, we can’t all buy Morgans – their waiting list is two years as it is.
And even they use Ford running gear iirc – manufactured, no doubt, in countries where making things is seen as worthwhile, and treated as such.
I swore blind I would not get involved in this scrappage thing. Fate, however, dealt a cruel blow in recent times by reducing our family transport down to a single vehicle; that being nineteen years old. Having been stitched together for at least the past three or four years with welding, it finally presented us with a string of MOT-failure points and we had to decide whether to go ahead with fixing them, or not.
Being effectively carless and thus stranded in a rural area forced an extensive trawl through car-sales magazines and Internet sites. I was really put off by the fact that second-hand car prices had gone up so much. Our original budget for a second-hander was fast looking inadequate and we had to raise it, mentally. We thought about buying another older (and thus cheaper) vehicle and decided against it; mainly because when you only have one car and it decides to go wrong, you have no back-up when living in an area without adequate public transport.
We were offered £3,000 for our old runner, while its MOT was still valid. By the time this discount had been applied to a new smaller car that we eventually decided on, we were actually spending not much more than our original budget.
We had not intended buying new, that is for certain; and have not been able to do so for some twenty years. But we got a vehicle that costs us less in VED than the old one and the mpg is better. And it’s Japanese……not European.
This was all outlined long before the scheme was put in place.
all the scheme has done is spend a pile of money and delay the slump in car sales.
Watch the slump in car sales come when the scheme stops. everyone with an old car who wanted a newer car will have bought one.
Everyone who owned a car that was not eligible will hang onto theirs now to avoid the showroom taxes.
Why do we have to wait till May to get this plonker out?
Oh come now this was obvious to anybody from day one.
Just open your eyes next time you are stuck traffic queue and you
will soon realise that Britain no longer produces mass market cars.
Of the top 10 selling cars in the U.K only 2 are assembled in
here (Astra & Mini) and all are produced by foreign owned
multinationals. I am sure Hyundai,Ford (who no longer make cars in the UK) and VAG are very grateful to Gordon.
How long before Jaguar production is moved to India??
Your readers may care to ponder that for a fraction of the money spent bailing out feckless bankers we could have saved Rover and funded the development of some decent cars. I know there are E.U rules about state aid but they don’t seem to have stopped the French, Italians or Germans and in any case the rules were quickly forgotten for RBS.The truth is that the political elite don’ t give two hoots for manufacturing, for all likes of Mandelson care their cars ,T.Vs and fancy phones could be made (abroad-ed).
If we seriously want to do something about the trade deficit and actually pay our way in the world again then we will have to start making stuff that people will pay good money to own. This would have an added bonus of creating some worthwhile jobs in parts of the country that still haven’t recovered from the 1980’s.
Alas I don’t hold out much hope.
Instead I suspect that we will just try and carry on borrowing (or printing) money that we haven’t earned to spend on imported goods which in many cases we don’t really need.
Sorry that what started out as a simple post degenerated into a rant. I am not an expert or ecconomist , I just feel strongly that we are on the road to ruin and that somebody needs to get a grip.
My note on the above got into the Childcare allowances responses by accident and should be read in this one
Some of the responses here show a depth of ignorance which s worrying
It definitely is no problem that we seem to be in some sort of economic debt or other.
Polly Toynbee said so yesterday.
You see, household ideas about debt are not the same as national ones.
She knows all about economics because she works, you see, at the Guardian.
I remember that the BBC News each month used to carry a report on the balance of payments deficit (surplus) as each set of figures were released – noted on the 6.00 and 9.00 news.
They don’t now, it appears.
Why not?
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