Cash for clunkers under microscope

VICTORIA’S top automotive industry body has again called into question the effectiveness of the federal government’s proposed ‘Cleaner Car Rebate’ in promoting the purchase of ‘green’ vehicles, as a new study into similar scrappage schemes in Europe reveals they had negative after-effects on new-vehicle sales.

The Victorian Automobile Chamber of Commerce (VACC) says it is not opposed to taking old vehicles off the road, but doubts the motives behind the Gillard government promise to give $2000 to motorists with pre-1995 vehicles when they replace them with efficient new cars.

The government has forecast the rebate, which has been roundly criticised by the opposition as an ineffective waste of tax-payers’ money, will take close to 200,000 vehicles off the roads over four years between January 2011 and December 2014, but VACC executive director David Purchase said the scheme was more spin than substance.

“I am inclined to think this is more about spin and being seen to be doing something for the environment than actually getting inefficient and unsafe cars off the road,” he said.

“If you drive a clunker, chances are you are not financially well off and therefore you are not going to be able to buy a new car, even with a $2000 rebate.

“And, if you are thinking about buying a new car, chances are that you can afford it, with or without the rebate.”

Mr Purchase said that rather promoting it as another ‘green’ initiative, the Cleaner Car Rebate would be more convincing if the focus was on both ‘green’ and ‘safe’ vehicles.

“Our research shows that about 30 per cent of vehicles on Victoria’s roads are unsafe. That figure is too high. It does not matter if a vehicle is new or old if it is not properly maintained, or not regularly serviced, it is a danger.

“In our opinion, a better initiative would be to launch a public awareness campaign to encourage motorists to get their vehicle serviced, which would improve safety and reduce emissions.

“VACC’s new car dealers, who you might expect to be jumping at the chance to increase sales, are calling for more details on this scheme. The Cleaner Car Rebate was announced without consultation, without warning and without sufficient detail. And because of this, it has caused some confusion among vehicle owners and potential buyers,” Mr Purchase said.

Meantime, a new study by industry analyst Polk of similar ‘cash for clunkers’ schemes in Europe shows new-vehicle sales declined in most markets when vehicle scrappage subsidies ended.

In Germany, where consumers were offered a discount of €2500($A3575) for new cars if they scrapped a vehicle nine years old or older and where a new car taxation scheme was introduced in July 2009, new-vehicle sales increased by more than 800,000.

However, Polk said that sales spike was followed by negative effects from the scrappage scheme in 2010, at the end of which it forecasts sales to remain lower than levels prior to the global financial crisis in 2008. “2010 will suffer from pre-buying effects due to the scrappage premium in 2009,” it said.

In France, Polk forecasts that a scrappage scheme that started in December 2008 – including a subsidy of€1000 ($A1430) for new cars that emit less than 160g/km of CO2 if a trade-in car is at least 10 years old, will result in additional 450,000 vehicles sales in 2009 and 2010.

Polk says this year’s reduced scrappage scheme in France will “help ease the usual depression of the after-incentives period”, but new-vehicle sales in 2010 will still be 2.5 per cent down on 2008 levels.

In Spain, where a scrappage scheme was extended twice “to prevent the market from dropping off even more”, Polk says it will take at least four years for the market to return to previous levels of around the 1.5 million annual units. It said a reduced version of the scrappage scheme introduced in 2009 will keep the new-vehicle market at around one million units in 2010, despite a two-point increase in the nation’s value-added tax (VAT) rate from July 1 that led to a strong pre-buying effect in June.

Spain’s scrappage scheme, covering vehicles older than 10 years that are scrapped in favour of vehicles less than five years old, involved a credit incentive of zero per cent finance to the value of €10,000 ($A14,300).

Italy’s scrappage scheme, meantime, included a subsidy of €1500 ($A2145) for new cars emitting less than140g/km (petrol) or 130g/km (diesel) of CO2 if a nine-plus year-old car is scrapped. Additional subsidies of up to €3500 ($A5000) were also granted for hybrid, all-electric or gas-powered new vehicles.

Polk says the cessation of seven years of scrappage schemes in Italy at the end of 2009 will result in “strong negative effects” in the remainder of 2010. New-vehicle sales boomed in Italy during the first quarter as a result of the scrappage scheme, but fell by double-digit percentages between April and June “as a result of negative compensatory effects following expiration of the scrappage scheme”.

“Although the impact of the economic crisis should lessen somewhat (in Italy), demand should nevertheless fall to 1.915 million, due to the negative counter effect (about 200,000 units),” said Polk.

According to Polk, the impact of the economic crisis will influence the British market for a longer period than other European nations and, while the UK’s scrappage subsidy has prevented a further decrease of the market, Polk believes the return to previous trend levels will take several years.

“Demand has remained agile in the first half of 2010 following expiration of the scrappage scheme, as the focus is increasingly shifting towards commercial registrations,” said Polk of Britain’s passenger car market, which it expects to finish 2010 with two million registrations.

“After a slowdown in the third quarter, demand at the end of the year will benefit from the VAT increase announced for January 2011,” said Polk.

Between May 2009 and March this year British customers were offered £2000 for scrapped cars more than 10 years old (half of which was a state subsidy, with the other half provided by the participating manufacturer), as part of the UK’s £400 million ($A698m) cash for clunkers scheme.

Finally, Greece, which instead of scrappage incentives offered its consumers a 50 per cent tax cut for new passenger cars (much like the Australian federal government’s small business tax break that ended in December), will post its worst new-vehicle sales figure this year since 1996.

Polk forecasts that new vehicle registrations in Greece, which was hit harder by the GFC than most other European nations, will not return to pre-GFC levels until 2013 at the earliest –because drastic saving measures by its government “will reduce private income and will have strong negative effects on (new) car demand”.