Elderly motorists have led the stampede to cash in on the £2,000 car scrappage scheme which starts today, according to the UK's largest dealership.

Fed up with earning next to no interest on their savings, they are opting to take advantage of the offer and pay in cash for a new car. Dealers say that small, cheaper models are particularly popular replacements.

Trevor Finn, the chief executive of Pendragon, said many dealers were reporting that the majority of motorists registering interest in the scheme were retired. One Citroen dealership in Reading he visited last week told him that three-quarters of inquiries came from older drivers – a trend experienced by many other dealers, he said.

The scheme is designed to kickstart moribund car sales and revive struggling carmakers. Motorists who own a car more than 10 years old can trade it in to qualify for a £2,000 discount on a new model. The discount is funded jointly by the government and the industry.

The scheme, which is more limited compared to most on offer on the continent, lasts for nine months or until the £300m pledged by the government to fund its share runs out.

Finn said: "A high proportion of the people who have applied are people who are on fixed incomes, particularly retired people who have had cars for a long time and are paying in cash. They aren't getting much of a return on their savings. But they can help counter this by getting a £2,000 valuation."

The business secretary, Lord Mandelson, said this morning that the scheme was a "wonderful bargain" for motorists and good news for workers across the car industry. Critics, though, have claimed that the £2,000 saving will be quickly eroded by the depreciation in value of new cars.

Finn admitted that he had originally been sceptical about the effectiveness of the scheme, mainly because consumers would only benefit from a £1,000 discount in many cases. Most manufacturers and dealers are already offering discounts of £1,000 or more. Because motorists do not receive any payment for the old car they hand in, the scheme only makes sense if the old model is worth less than £1,000.

"The idea has got some traction," he said. "I started off being sceptical but, having seen more of the marketing and having the initial feedback, it's clear that the scheme is driving showroom enquiries."

Edmund King, the president of the AA motorists body, said 250,000 car owners would be interested in taking up the offer. "There will be an initial rush to the showrooms," he said, "but as details come through to the mass of motorists, you will see another wave of interest after two or three months."

Last week, Pendragon invited customers to register to have their old car valued on its car retailers' websites, www.stratstone.com and www.evanshalshaw.com. Finn said 5,000 people had registered their details.

Dealers have already started selling old cars to scrap merchants. Cartakeback bridges the gap between the car dealers and the scrapyards and claims to deal with about 70% of the cars heading for the scrapheap in Britain.

Its manager, Graham Price, said: "The indications are that several thousand vehicles have been pre-sold under the scheme. There does seem to be interest from the public, judging by the end-of-life vehicles coming our way."

He said the volume of cars being scrapped was down about 15-20% this year but he expected that to be offset by the scheme. "The scrappage scheme will certainly redress that, but it does appear to be borrowing business from the future."

Car scrapyards, mostly family-run business, are a little discussed beneficiary of the scheme. A car, broken down into scrap metal, fetches about £150 with much of the recyclable material heading for Turkey, India and the Middle East. The price is volatile, depending on the demand for raw materials and was twice as high last summer.

However, prices are higher than they were in last autumn, when a scrapped car fetched just £50. Under government regulations, 85% of a vehicle must be recycled, going up to 95% in 2015. Between 1.5m and 2m cars are taken off the road each year.