Coming as a response to an economic downturn and the dropping sales in the car industry, several countries have introduced various car scrapping schemes. Both Germany and France have created measures for car owners to trade in their used vehicles for cash. Following suit, the UK hopes that its car scrappage scheme will boost consumer confidence in the auto industry.

The scheme began in May 2009 and will run through February 2010, or for as long as the £300 million allotted by the government lasts. With the scheme, owners of cars over 10 years old are eligible to turn them for a £2,000 rebate toward a new car. Cars must have been registered before 31 August 1999 so as to disallow participants from buying a banger and turning it in for cash. Vans under 3.5 tonnes may also be exchanged. The reimbursement is comprised of a £1,000 government grant and a £1,000 matching contribution from the car manufacturers. Even though the scheme was introduced as voluntary, nearly every auto manufacturer signed on.

Recently, carmakers have faced low sales, reduced pay and plant closures. They embraced the scrapping scheme as a business incentive and a survival tactic. At the beginning of 2009, the government was already offering assistance to troubled carmakers, but scrapping schemes speak to a deeper issue: low sales. With so few Brits buying cars, the industry simply cannot survive. With this incentive, older, devalued and often less energy efficient cars can be exchanged for credit toward new vehicles. Both consumers and carmakers win.

In order to take advantage of the scheme, the used car must meet the basic requirements before the buyer signs off on the new vehicle. Cars must be: under 3,500 kg, registered in the UK, registered in the participant’s name, registered with the participant for more than 12 months before the purchase of the new car. They must have a current MOT certificate and a current tax disc, and they must be insured.

New cars must also be under 3,500 kg, completely new, and registered in the UK after May 2009. Both used and new cars must be under the same registered name.

The auto manufacturing industry enthusiastically joined the scheme, and it fears its end. The boost given to the industry in the past few months is significant enough to warrant worry that once the scheme is up, the industry will be back to its record lows. UK cars sales are up by six percent from last year, and 67,006 cars were sold in August.

Criticism for the scheme comes from environmentalists, who attack the government for allowing consumers to trade up bangers for any type of car – with no particular incentive toward energy efficient vehicles. Interestingly, a similar scheme introduced to the United States called Cash for Clunkers saw a revenue of USD 2,877.9 million, where the majority of trade-in cars were the gas guzzling Ford Explorers, Jeep Cherokees, and pickup trucks. In exchange, Americans opted for the small Toyota Corolla, Honda Civic, and the hybrid Ford Focus and Toyota Prius.

But is it worth it? To make car scrappage worthwhile, consumers should make proper calculations. Given that new cars tend to depreciate most in the first three years - losing up to 65 percent of their initial value - car buyers should weigh car types against one another and choose the one that depreciates less, like BMW. Those that depreciate the most tend to be the least fuel-efficient cars, like Range Rover.All that said, the old car may actually cost less to maintain in the long run. Another scepticism is the cost of fuel: while buyers may be saving now, the 2p a litre increase at the pumps may cost motorists up to £590 million in a year.

On the other hand, new cars usually come with a three year warranty and do not require MOT testing during that time. Never-before new car owners can have that rush of ownership. Smaller cars are more worthwhile because they don’t often come with discounts, making the £2,000 rebate a good deal. Large vehicles, in contrast, may already come with discounts greater than the rebate. Small vehicles, like the Alfa Romeo Mito, Fiat 500, and the VW Golf are some of the best buys. Newer, smaller cars are better equipped for fuel efficiency, thus they are more compatible with environmental standards today.

Although fears, criticism, and scepticism remain, if the UK shares the experiences of other countries’ schemes then car scrappage may be quite worthwhile to the industry, economy, and consumers alike.