This week saw the launch of the UK government’s car scrappage scheme, where motorists buying a new car will get a £2,000 discount if they trade in a car over ten years old. A number of you requested that we take a look at how good a deal this actually is, so we’ve applied some business case thinking to the problem.
We compared two scenarios.
- Firstly, trade in your old car now for £2,000 and buy a new one (which is probably more fuel-efficient, in a lower tax band and pricier to maintain and insure)
- Secondly, keep your old car and scrap (or sell) it in five years.
Which of these is more cost-effective? Well, there are no prizes for guessing that it depends on your particular circumstances. How many miles do you drive each year, how much do you pay to keep your current banger on the road, what new car are you thinking of buying, and so on. With a lack of any hard facts to go on, what would any good business case analyst do? That’s right, make some wild assumptions based on a fictional scenario and hope that nobody checks the detail.
Combining our set of unvalidated baseline assumptions together with data from the AA on the total cost of car ownership, the answer is … choose your new car carefully and it could be a good deal. Trade your old car in for, say, a slowly-depreciating, fuel-efficient Mini Cooper D and you could save between £1000 and £2,500, depending on how many miles a year you drive. On the other hand, choose a much more rapidly-depreciating, less fuel-efficient car such as the Daewoo Lacetti and it could cost you over £8,000, albeit you won’t look like a Foxton’s estate agent.
The conclusion is simple then. If you want the best deal, use some good financial sense about the value of the asset you are buying and its running costs.
We are happy to share our model if you want to check your own circumstances. Just let us know.