CAR SCRAPPING SCHEMES

Publication date: 27 July 2009

Europe leads the way in renewing car fleets

Many Member States have responded to the current economic crisis with the introduction of scrapping schemes for vehicles. These give either premiums or other incentives to buyers to replace their existing old cars for new ones. We give a brief overview.

The automotive industry is facing its biggest downturn in recent history with new passenger car registrations in the EU down by 17.2% in the first quarter 2009. The trend is the same around the world with car sales in the US and Japan at their lowest levels since the 1970s. This explains why the US is currently considering schemes similar to those in Europe. European vehicle manufacturers clearly see car scrapping schemes as an answer to their pressing needs.

Germany, home to much of Europe's car industry, was very quick to put in place its EUR 1.5 billion scheme from 14 January 2009. The scheme was so successful that it was trebled to EUR 5 billion in April 2009. Vehicles that qualify for the premium must have a first registration in 2009, be less than 12 months old, sold by an authorized professional and be either purchased, rented or leased by the same person registered to scrap the old vehicle of which there must be proof provided. The measure is seen as leading to a positive effect in stimulating German consumers. German club ADAC, though, has pointed to long waits in order to fulfill the formalities required to get the subsidy.

According to car manufacturers' association ACEA, new car registrations in Germany increased by 30% in February 2009, following the launch of the fleet renewal scheme. Total sales for 2009 could reach 3.1 million cars instead of 2.8 million as forecast initially. Car manufacturers also point to roughly 20% of all cars sold in France in January 2009 replacing old cars that qualified for the scrapping incentive. In Portugal, 16% of all cars purchased in 2008 replaced old cars that qualified for the scrapping incentive.

France, that other great car-making nation has established a EUR 300 million scheme offering EUR 2500, from 14 January to 31 December 2009, to private individuals only. It was envisaged for 150,000 vehicles but may receive some 360,000 applications if current demand continues at 30,000 applications per month. This would require double the budget. Christian Scholly, deputy director general of France's Automobile Club points out that the French measure could be better subsidized. "You receive the money if you buy a car with a CO2 emissions performance under 120 grammes per km or scrap a car over 10 years old. It is having a very good effect on the car fleet," said Scholly.

Scholly notes that the average age of France's car fleet has been increasing and now stands at 8.3 years. "It is important to have a better car fleet, also for the environment," he said. Scholly is also happy at the relative lack of bureaucracy. "In France, the paperwork is done by the seller of the new car," he added. However, the question is whether the new initiative will continue in 2010.

Romania, too, has had its own scheme since 2003. The Romanian scheme was originally based on meeting the scrapping requirements of the End-of-Life Vehicles Directive. "They managed to reduce the number of vehicles aged 20 years plus in the national car park from 24% to 6%," explains Caroline Ofoegbu from the FIA European Bureau. She attended a seminar organized by the Commission on Europe's various car scrapping schemes. By offering a premium of around EUR 800, new car purchases also increased dramatically in Romania from 19% in 2003 to 58% in 2007.

Italian club's ACI is very pleased with the country's "eco-incentivi". "This system works," said Enrico Gelpi, President of ACI. Other than promoting the renewal of Italy's car fleet, one of the oldest in Europe, Gelpi sees it leading to the introduction of safer and more environmentally friendly cars. Italy gives EUR 1500 for the purchase of 4 Euro 4 norm vehicles and cars with exceptionally green credentials. The scheme also applies to light commercial vehicles. A higher premium of EUR 2500 is available on Euro 0, 1, 2 vehicles older than 10 years. Up to EUR 4000 is available for light commercial vehicles. It is also possible to benefit, in Italy, from multiple schemes on a single purchase and there is also a premium for motor cycles. "So far there has been a 3% reduction in CO2 emissions as a result of this initiative," said Gelpi.

Cyprus, too, offers bonuses are available on the basis of competitions organized by the state and opened annually. The bonuses are given on a first come first serve basis. Tax incentives are also available for scrapping and fleet renewal. In the Netherlands, the government has just agreed on a EUR 65 million scheme that should give owners of old passenger cars between EUR 750 and EUR 1000 when purchasing newer cleaner cars. A subsidy of between EUR 1000 and EUR 1750 is also being given for old diesel delivery vans. The regulation, however, comes to a term once the €65 million EUR budget dries up.

Other countries are also considering introducing or implementing schemes such as the Hungary and Poland. Swedish club Motormännens is lobbying hard for its government to re-introduce a scrapping scheme claiming the country has one of Europe's oldest fleet with 37% of private cars older than 10 years.

Commission sets guidelines for schemes
The Commission states that member states' car scrapping schemes must be non-discriminatory and ensure that there is no circumvention of the rules (i.e. fraudulent purchases). They should also aim to promote fleet renewal with environmentally cleaner and safer private vehicles as well as commercial vehicles (both light and heavy). "The goal should be to eliminate vehicles in Euro categories 0, 1, 2 and possibly even euro 3 with a minimum age of nine years," explained Ofoegbu. "Additional incentives should be available for the take up of new technologies also."

Schemes, though, have been criticized for having little real impact on economic growth or production. "They bring forward purchasing decisions already made by consumers. In the immediate short term, this boosts sales, but may also depress sales in subsequent years," admitted Ofoegbu. But given the current economic crisis, the demand side measure is seen as necessary as the automotive industry is in dire straits.

"In some cases such schemes can have a lasting positive effect on the economy as has been seen in Italy. This may also be the case with the current scheme in Germany," added Ofoegbu. Schemes also help to create a psychologically upbeat mood in depressing economic times. Fleet renewal may also enable many to make their first ever purchase of a brand new vehicle. That was a point made by the UK's AA club.

The UK's vehicle scrapping scheme, which started in mid-May 2009, will not only pump an extra £2 billion GBP turnover into the UK's ailing car sector, according to the AA, but appears to appeal most to younger and lower-income drivers. A survey of nearly 15,000 AA members showed that under the scheme a full 20% of 18-24 year olds were interested in buying a new car. This compares to 11% of drivers overall, with women more interested than men at 13%. In effect, the UK scheme is providing a deposit against loans for many less-well-off drivers. Just one month after its introduction, the scheme had led to 60,000 orders being taken by manufacturers.

The scheme also has implications for road safety. "In one go, the scheme will transform the chances of survival in a crash for thousands of car owners whose current old cars would only have two-star crash test protection under Euro NCAP compared to the average four or five-star protection of newer models," said Edmund King, AA President. Younger drivers, carrying several passengers, in older cars, are most at risk on the roads and seem most keen to participate in the scrapping scheme.