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Car Scrappage Scheme Boosts German Car Sales

Could a Car Scrappage Scheme clear inventory?

Could A Car Scrappage Scheme Clear Inventory?

Germany has seen a welcome boost in car sales in February thanks to a recently launched car scrappage scheme whereby consumers are paid €2,500 to trade in their old car for a brand new model.

Similar car scrappage schemes have also just been introduced in fellow European countries including Italy, Spain and France. Any qualms about the scheme have been eased after the German Association of International Motor Vehicles (VDIK) said 277,700 Germans registered new vehicles in February, representing a 21% increased compared to the same month last year.

The German government’s eco-rebate, which rewards the customer with the equivalent of £2,300 when exchanging vehicles that are at least nine years old for new ones, is seen as being the driver behind the recent improvement in sales.

Conversely, North America and Canada who are also desperately trying to breathe life into their automobile industry, have not fared at all well despite introducing their own set of measures, albeit of different natures to that of Germany.

Canada introduced a program in January, under which consumers can receive benefits such as free travel passes, membership in car sharing programs, cash contribution towards a new bike, $300 (£165) cash or $500 (£275) rebate on the purchase of a vehicle built in 2004 or later. The incentives however vary by province.

In the U.S. billions of dollars have been pumped into General Motors and Chrysler in the form of emergency loans to keep them afloat until the economy recovers, but so far with little benefit and commentators are questioning the adequacy of such schemes in getting consumers back into the showrooms and spending money.

Of the Canadian scheme, Bill Pochiluk, president of industry advisor AutomotiveCompass, claimed that the scheme was “completely inadequate” citing the car scrappage scheme offered in Germany as being more effective at stimulating vehicle sales than government bailouts.

Analyst Dennis DesRosiers meanwhile sees the programs as “a waste of taxpayer’s money” and considers the model used in Japan, where rigorous inspection programs often forced customers into buying new vehicles, to be preferable in comparison.

Additionally, DesRosiers said that it’s also “stupidly expensive” for the taxpayer and that whilst vehicle sales were boosted in the short term, most of the consumers taking advantage of the program were probably going to purchase a new car in the near future anyway.

Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association acknowledged that sales were happening sooner than they otherwise would have as a result of the program, but that this was exactly what the economy needed right now.

“We need something that generates revenues now” Nantais points out, making reference to the fact that the companies concerned needed these revenue streams to carry their operations forward.

Meanwhile Linda Hasenfratz, CEO of Linamar Corp, the Canadian auto parts supplier, sees a good car scrappage scheme as doing more than just stimulate vehicle sales, but also as realising a huge environmental benefit “because the emissions in those older vehicles are massively higher than the ones being produced today.”

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