UPDATE: UK New-Car Registrations Rise For Third Month

U.K. new-car registrations rose for the third consecutive month in September as the government's car-scrapping scheme continued to bolster sales.

Registrations - a measure of sales - rose 11.4% on the year in September to 367,929 vehicles, compared with a 6% rise in August and a 2.4% rise in July, according to data from the Society for Motor Manufacturers and Traders.

September is one of the most important months for U.K. car sales because it marks one of the twice-yearly changes in car registration plates.

"Market conditions remain challenging with demand being underpinned by the extremely successful scrappage incentive scheme,” SMMT Chief Executive Paul Everitt said.

The U.K. scrappage plan, which came into effect May 18, mirrors similar plans in other Western European markets. It offers car owners a GBP2,000 discount on new vehicles when they trade in vehicles that are more than 10 years old. The cost of the discount is split equally between the government and car manufacturers.

Demand for new cars had plummeted in the U.K. before the scheme was implemented, due to the deepening recession. New-car registrations for the first nine months of this year are still down 15% on the year-earlier period at 1.52 million vehicles.

The U.K. government initially set a budget of GBP300 million for the scheme, meaning that up to 300,000 vehicles could be purchased. However, the success of the scheme meant that the money was set to run out this month, and the government last week added another GBP100 million to the scheme, enough to fund a further 100,000 vehicle sales. At that time, it said some 227,000 vehicles had been ordered so far under the initiative.

“The extension of the scheme will help to sustain demand through the latter part of this year and into 2010. This will allow economic recovery to strengthen and safeguard valuable industrial capability,” Everitt said.

Despite the extension of the plan, market experts and car executives are concerned that demand will collapse again when the scheme ends. The economy remains fragile, with unemployment on the rise and taxes set to increase in coming years as the government looks to cut debt. Additionally, the U.K.'s sales tax - value added tax - is set to rise at the start of 2010. The U.K. government cut the tax to 15%, from 17.5%, for 2009, but it will revert to the previous level.

"We need to be cautious when looking towards prospects for 2010," said Keith Parry of Barclays Commercial Bank. "The ending of the scrappage scheme in February at the latest and the VAT increase at the start of the year could leave the sector without any support at a time when there are likely to be increasing pressures on consumer spending on big ticket items.”

For the time being, Ford Motor Co. (F) and Hyundai Motor Co. (005380.SE) continue to be among those most benefiting from the U.K. scrapping scheme. Ford, the biggest seller of cars in the U.K., saw sales rise 22% to 54,553 vehicles, while Hyundai sales more than doubled to 11,031. Both manufacturers sell small models with low CO2 emissions that meet the conditions of the scrapping scheme.

Other volume manufacturers like Fiat SpA (F.MI), Honda Motor Co. (HMC) and Volkswagen AG (VOW.XE) also posted growth.

However, Vauxhall, whose brand has been tarnished by the bankruptcy filing in the U.S. of parent General Motors Co. and a protracted sales process that has yet to be finalized, saw its sales drop 3.5% year-on-year to 41,255 vehicles and its market share fall to 7.6% from 8.2%.

-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284; [e-mail]