What Car? warns of tough times ahead

What Car? is supporting the car industry's call for an extension to the car scrappage scheme as car buyers face sizeable price increases over the coming months.

New car prices have already risen by 9.5% this year, while used car prices are an astonishing 30% higher than they were a year ago. Car buyers will face further price increases of at least 2.5% if the Government, as expected, puts VAT back up in the new year.

Since May, many car buyers could offset price rises by taking advantage of the 2000 discount available on new cars bought through the Government's scrappage scheme, but the cash set aside for the scheme is set to run out in the next two months.

This combination of circumstances represents a 'perfect storm' for car buyers, so What Car? is calling on the Government to extend its scrappage scheme.

What Car? editor, Steve Fowler, says: 'The car scrappage scheme has been a huge benefit for car buyers, the car industry and the Government.

'Every car sold over 7650 covers the 1000 Government incentive and puts money into the Chancellor's coffers, so extending the scheme is likely to cost the Government next to nothing, will help to boost the UK economy and speed our exit from recession.'

The falling value of the Pound against the Euro is affecting car makers' costs. Since 2007, the pound has lost 25% of its value, forcing up prices on cars that are built in Europe or using European-made parts, but sold in the UK.

With Germany and France recently coming out of recession and UK interest rates low, most major manufacturers have raised prices this year. For example Ford has put up its prices three times. At the end of 2008, a Focus 1.6 Zetec five-door had a list price of 16,145, but today the same car costs 17,695.

Any further falls in the value of sterling are likely to force car manufacturers to increase prices again before the end of the year.

Meanwhile, the price of a used car is up 30% on this time last year, according to data from auction group BCA.

The steady decline in new car sales before the scrappage scheme was introduced meant fewer cars reached the used market. Part-exchanges dried up, while fleet and lease companies held onto their cars for longer, starving the market of a traditional source of vehicles.

As a result prices, particularly for the best nearly new cars, increased as dealers and garages competed to fill their forecourts. According to BCA, the average price of a new car rose by 1400 in the nine months before August.