Car scrapping schemes may not work

LONDON (Reuters) - The government is studying car scrapping schemes introduced in other European countries to boost demand for new models, but is not certain they would work, a spokesman for Prime Minister Gordon Brown said on Friday.

German dealers have reported an upturn in business after the government announced plans to issue certificates worth 2,500 euros (2,180 pound) for all new car buyers who scrap vehicles that are at least nine years old.

Business Secretary Peter Mandelson said in a speech on Thursday night that he was studying the initiative as he tries to revive Britain's struggling car industry.

"We have said scrapping schemes are an interesting idea," Brown's spokesman said. "But we are not convinced how a scrappage scheme would provide a stimulus for demand."

New car sales in Britain fell by almost a third year-on-year in January to register their worst performance for that month since 1974, according to figures from industry body the Society of Motor Manufacturers and Traders (SMMT).

The SMMT urged the government to adopt car scrapping schemes similar to those in Germany and other European countries.

The government last week pledged to guarantee up to 2.3 billion pounds of car loans to help the car industry to battle a slump in demand that has cost thousands of jobs.

It is also discussing measures with the banks to boost the flow of credit to the finance arms of the car sector.