The government’s scrappage scheme has created a vital boost in demand for vehicles, as new car sales fell at their slowest rate for almost a year.

New car registrations fell by 15.7% in June compared with the same month last year. In May, output fell by 43%, with a 55% annual drop in output in April.

According to figures released by the Society of Motor Manufacturers and Traders (SMMT), 176,264 units were sold during the month, the smallest decline in sales since July 2008. In April the SMMT forecast that registrations would fall to just 153,000 units, adding that there would be a time lag before the full positive impact of the scrappage scheme would be felt.

“We are now beginning to see the positive impact of the scrappage scheme translate into new vehicle registrations,” a spokesperson for the organisation said.

The scrappage scheme, which offers a £2,000 discount on a new car for drivers who trade in a car over 10 years old, accounted for about 10% of sales. The SMMT said 29,796 vehicles had been sold under the scheme since its launch on 18th May 2009, while government figures reveal that some 87,000 orders had been placed up to 21st June.

The Department for Business, Innovation and Skills predicts that if the number of cars sold under the scrappage programme continues at the current rate, the scheme will be exhausted by the end of October. It had first forecast that it would last until March.

Motorists tended towards buying smaller, less expensive cars that were more efficient to run, the SMMT said, with the Ford Fiesta topping the bestsellers lists for the fifth time this year. The mini section of the car market soared by 145.4% this month.

“SMMT expects the pace of improvement to increase in the coming months, but we can already see the industry making steady progress on the long road to recovery”, said SMMT Chief Executive Paul Everitt.

The scrappage scheme was introduced by Chancellor Alistair Darling in the 2009 Budget in response to UK job cuts and production slowdowns resulting from a decline in sales UK-based car makers such as Jaguar Land Rover, Vauxhall and Ford.

Some have criticised the scheme, however, saying that it is not as generous as similar schemes introduced in countries such as Germany, where customers are offered an entirely state-funded incentive of €2,500 (£2,100) against both new and nearly-new cars. In the UK, the £2,000 discount is jointly funded by the government and the car industry, and applies only to brand new cars.

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