With the amount of money people are willing to spend on high price items dropping considerably in recent months as the credit crunch bites, the British car industry has suffered a serious downturn.  Recent figures suggest that Europe-wide car sales have reached their lowest point in twenty years, with British sales in particular down a dramatic 30.9%.

The car industry received a loan deal from the government to the tune of £2.3 billion but is still desperately waiting for help with consumer credit.

“Scrappage” scheme will aid car loan numbers

AA said that a “scrappage” scheme, which involves owners of old cars being offered a government voucher worth £2000 to trade in their car for a new, more efficient model.

Lord Mandelson, who is charged with deciding whether to introduce the scheme, acknowledged that he had been considering the proposals but had yet to make a final decision.  It is thought the scheme would be modelled on existing schemes, which operate in continental Europe, including Germany,

"We are working to find ways to help the finance arms of the car sector keep providing the credit that keeps the industry moving. (Trade minister) Lord Davies has already met the banks and industry on this. I am also looking at other countries' experience with scrappage schemes." Said Mandelson.

Mark Huggins, from the AA, said that his organisation was fully behind the proposals and thought that the scheme would not only improve road safety and help the environment but would also be a major boost for the car loans industry.

"The proposal ticks all the right boxes. I believe it would be a popular move and would allow many families to buy their first brand new car. A recent AA / Populus survey amongst over 17,000 drivers showed that 28 per cent said they would consider taking advantage of such a Government incentive to scrap older cars." He said.

The fact that people across the country have less money to spend, has obviously had a dramatic effect on car loans and the AA noted that the scheme may convince more people to take advantage of a loan with the proposed savings.

“A scrappage scheme would also help consumers obtain loans to purchase new cars and it would make a huge difference when it comes to choosing a new or nearly-new car. AA Personal Loans monitors car buying behaviour through the CPI (Car Purchase Index) and it is clear that economy in now more important than reliability when it comes to making a car purchase decision.” Added Huggins.