British car sales surge 31.6% in October: trade

Sales of new cars in Britain soared by 31.6 percent in October as a result of the state-backed old-for-new scheme, industry body the Society of Motor Manufacturers and Traders announced Thursday.

New car sales rose 31.6 percent last month to 168,942 vehicles, compared with the same month of 2008, the SMMT said in a statement. That was the fourth monthly increase in a row.

"October has seen this year's biggest monthly increase in registrations with the successful scrappage scheme accounting for over 20 percent of them," said SMMT Chief Executive Paul Everitt in the release.

"We have seen additional demand created by the extension of the scheme and customers wanting to avoid the VAT increase planned for January.

"Encouragingly, there has also been an increase in demand in the fleet and business sectors, which will be critical in sustaining recovery next year."

Despite the positive news, car sales for the January-October period have fallen 12.3 percent, compared with the equivalent period of last year, according to the SMMT.

In September, the British government had extended its popular car scrapping scheme, with additional funding for an extra 100,000 vehicles.

Britain's 400-million-pound (446-million-euro, 662-million-dollar) scheme mirrors similar projects in France, Germany and the United States.

The initiative -- giving buyers a 2,000-pound (3,200-dollar, 2,300-euro) discount when they trade in a car over 10 years old -- launched in April. The government and car manufacturers each contribute half of the cost.

Meanwhile, Value Added Tax (VAT) was cut to 15.0 percent last December to help boost consumer spending during Britain's deep recession.

However, the VAT rate is set to return to its pre-recession level of 17.5 percent rate in January 2010.

"The further pick up in car sales in October was clearly driven primarily by the scrappage scheme and a desire to beat January's VAT hike," said IHS Global Insight economist Howard Archer.

"It may also be a sign that a significant number of consumers have greater scope and willingness to step up their discretionary spending.

"This is due to their purchasing power being lifted by sharply reduced mortgage interest payments, lower utility bills and a moderation in inflation."

The worldwide automaking sector remains in crisis as many consumers steer clear of buying vehicles amid a dire global economic downturn.