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The government is likely to introduce an incentive scheme for car owners to scrap old vehicles in exchange for new ones, the BBC has learned. The move would probably involve a payment of £2,000 to trade in cars that are a certain number of years old. The controversial plans are designed to boost demand for new cars and help struggling carmakers who are suffering during the recession. A similar scheme in Germany has seen demand for new cars rise dramatically. France and Italy have also introduced so-called car scrappage schemes to boost their beleaguered car industries. Details of the UK scheme are likely to be announced in the Chancellor's budget on 22 April, according to BBC correspondent Joe Lynam. "A scrappage scheme will provide the incentive needed and the evidence is clear that schemes already implemented across Europe do work to increase demand," said Paul Everitt at the Society of Motor Manufacturers and Traders (SMMT). Record falls The government has been reluctant to introduce a scheme at a time when its finances are being stretched by a series of economic stimulus packages. It is also concerned about supporting one struggling industry over another. But it appears that the dire state of the automotive industry has forced its hand. Car sales fell by almost a third in March this year compared with last year. The drop was viewed as particularly disappointing given that March is the month for new car registrations and sales are, therefore, usually strong. Car production has been affected even more dramatically, with the number of new cars produced in the UK falling by a record 59% in February, year-on-year. This represents the largest monthly fall since records began in 1970, according to the SMMT. Root cause Carmakers have been forced into drastic action in order to survive. For example, Honda has closed its Swindon plant for four months, while Toyota has reduced pay across its UK factories by 10%. While sales have been falling in the UK, new car registrations in Germany rose 40% in March and by 10% in France after both countries adopted scrappage schemes. In Germany, drivers get 2,500 euros (£2,250; $3,299) for trading in a car more than nine years old, while in France motorists can receive up to 1,000 euros. Scrappage has also recently been introduced in Spain. The UK government has already announced some help for UK carmakers. In January, it revealed its £2.3bn Automotive Assistance Programme to provide loans to troubled car manufacturers, while Jaguar Land Rover has been granted £27m to develop a fuel efficient vehicle. But car scrappage schemes are seen as targeting the root cause of the industry's woes - a lack of demand for its products. They also, the government argues, help the environment by replacing old, inefficient vehicles with cleaner, more efficient ones. However, their environmental credentials are not universally accepted. "This scheme won't create jobs and it won't help the environment. All that you're going to get is a switch to more polluting, bigger vehicles. And that's not going to help anyone," said Peter Cranie of the Green Party.

DATED: 14.04.09

FEED: AW

Shares in US carmaker General Motors fell steeply in European trade after a report the US government wants the firm to start bankruptcy proceedings soon. The New York Times said the Treasury Department wants a court-supervised restructuring to start by 1 June, but the firm would prefer other options. In early trade in Frankfurt, GM shares were down 14.3% at 1.32 euros after closing 16% lower in New York. Meanwhile, GM is recalling 1.5 million vehicles over engine fire fears. The recall involves vehicles with a 3.8-litre V6 engine, and includes the 1998-1999 Oldsmobile Intrigue, the 1997-2003 Pontiac Grand Prix, 1997-2003 Buick Regal, and the 1998-2003 Chevrolet Lumina, Monte Carlo and Impala. The recall comes after US government safety agencies said drops of oil could fall into the exhaust system and cause a fire in the engine. 'Broad implications' Car firms worldwide have been hard hit by a slowdown in demand, as consumers tighten their belts faced with the current financial crisis. In February GM announced a restructuring plan, which involved 47,000 job cuts, cutting five plants, and axing 12 car models. On 30 March, the US government gave GM 60 days to develop a new restructuring plan as a condition for further state aid. Should GM enter bankruptcy, the ramifications would be felt around the world and not just in the US, as can be seen by the reaction of the German markets. Earlier, in Japan, the biggest downward move on the Nikkei was from carmakers and other automotive shares, with some analysts saying the move was on fears about the fate of GM. "If GM were to go bankrupt, that would raise questions about what would happen to Japanese auto-parts makers and Japanese automakers' dealer networks. The implications are broad," said Takahiko Murai, general manager of equities at Nozomi Securities. US car firms, including GM, have faced increasingly tough competition from Japanese car firms, which have developed more energy-efficient and smaller models. The White House has already given GM $13.4bn (£9bn) in public money to prevent it from collapsing, but any additional aid requires the firm to meet tougher rules.

DATED: 14.04.09

FEED: AW