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‘Scrap’ incentive mooted to boost car sales

Road from ruin: The Australian automotive industry is researching successful 'scrappage' schemes that reward owners of old cars to trade up to new, more efficient cars.

Successful German scrappage scheme sparks interest in Australia

10 Mar 2009

A SCHEME to encourage Australian motorists to replace their old vehicles with safer and more environmentally friendly new models is one of a number of proposals being assessed by the automotive industry to stimulate new car sales.

Australian new-vehicle sales were down 21.9 per cent last month, in line with the automotive sales downturn in most Western markets – but in stark contrast with new-car sales in Germany, where sales spiked by 21 per cent to be the strongest in a decade.

The upturn in fortunes of the German car market has been largely attributed to a new ‘scrappage’ scheme by the German government which is offering private consumers about $5000 towards the purchase of a new car if they trade in a car that is more than nine years old and has been registered for at least the past six months.

Germany’s apparent immediate success with its new scrappage system has revived enthusiasm for such schemes in Europe, where last week’s Geneva motor show was abuzz with scrappage talks and where many countries have offered similar incentives for years.

Now scrappage discussions are also being held at the highest levels in Australia, where the average age of vehicles remains among the world’s oldest at more than nine years.

Australia’s peak motor industry body, the Federal Chamber of Automotive Industries (FCAI), confirms it has been investigating the effectiveness of introducing scrappage scheme in Australia for a number of weeks, among a number of potential options to stimulate new-vehicle sales.

80 center imageFCAI's Andrew McKellar.

FCAI chief executive Andrew McKellar told GoAuto this week there were advocates in the industry for a scrappage incentive.

He said the German scheme indicated such incentives were effective in stimulating demand.

But he cautioned that the pros and cons had to be worked through systematically before the industry could approach the federal government with a proposal.

The FCAI chief stressed that the benefits of a government plan to provide a 30 per cent business tax break for capital expenditure, including fleet vehicles, which is yet to pass through parliament, should first be realised.

“It is a 30 per cent investment allowance that will go to a wide range of businesses investing in new capital equipment including the purchase of new motor vehicles,” he said.

“So I think from the industry’s point of view that is something that’s concrete. It’s something that’s immediate and is on the table right now.

“The legislation to give effect to that is coming into parliament in the next week or so, and I think the industry is very keen to get right behind that particular measure and to see that promoted for all it’s worth and to ensure that it is successful, because I think it’s a very strong measure of support.

“The government has announced some very significant measures and I think the industry has to be smart in the way in which it responds to those and the way in which it seeks to get maximum benefit out of those.

“I think we would leave ourselves open to criticism if we don’t give those measures which have been announced every chance to work and to prove their effectiveness.” Australia’s top-selling automotive brand, Toyota, said it supported consideration of an automotive scrappage scheme in Australia.

“The automotive industry is now preparing a range of ideas that we can put to government to stimulate the market,” a Toyota spokesman told GoAuto.

“Toyota supports the investigation of a 'scrappage' scheme for the Australian market. A scheme that provides an incentive for consumers to take old cars off the road and buy a new car with better environmental efficiencies is both good for the economy and for the environment.

“It will also increase the number of vehicles on our roads with better safety features.” GM Holden spokesman Jonathan Rose stressed the need to examine all ramifications of any scrappage scheme before it was supported by the company.

“Holden is looking into this with the FCAI,” he said. “We’re always looking at strategies that might stimulate the market. (But) we need to see if there’s a demonstrated benefit before committing our support for it.

“Careful consideration needs to made before rushing into any overseas scheme, to make sure it is appropriate locally.” Ford Australia spokesperson Sinead McAlary reiterated the need for any potential scrappage scheme to be well thought-out, and suggested incentives to buy more expensive Australian-built cars would also need to be a key component.

“Ford believes that, while the (scrappage) idea potentially has some merit, there are numerous issues around initiating a scrappage system in Australia, including how it could be structured to help sell locally-produced cars – not just imported cars at the cheaper end of the spectrum,” said Ms McAlary.

Head of Australia’s automotive importers representative group, Honda Senior Director Lindsay Smalley, was unavailable for comment as GoAuto went to publication.

In the UK, new-vehicles sales also dropped 21.9 per cent in February, when that country’s Society of Motor Manufacturers and Traders (SMMT) called for a national scrappage scheme similar to those that have operated in other European states for some years.

SMMT chief executive Paul Everitt welcomed the UK Department for Business, Enterprise and Regulatory Reform’s February 27 activation of £2.3 billion ($A5.06b) in loan guarantees it announced in January, but urged the British government to act immediately on outstanding proposals aimed at stimulating market demand, including a scrappage scheme.

“The clearance of state aid to support the automotive sector is an important step in sustaining the UK motor industry, but the need for short-term measures to kick-start demand in the market remains critical.

“Across the EU, member states have introduced scrappage incentive schemes which have already proved successful in their ability to stimulate demand and minimise the impact on manufacturing and retail jobs.” Germany’s new scrappage system offers owners of cars more than nine years old a €2500 ($A4940) subsidy if they trade up to a Euro IV car that is less than 12 months old It is expected to increase new-car sales in Germany this year by 600,000 vehicles.

Italy’s long-running scrappage scheme offers €1500 ($A2961) to replace a car that is more than nine years old with one that is at least Euro IV emissions-compliant and emits less than 140g/km (petrol) and 130g/km (diesel).

Romania’s simple system pledges €1000 ($A1974) to owners of cars more than 10 years if they buy a new one, while in Greece a €400-€800 ($A790-$1500) payment is offered to those that scrap a vehicle of any age, plus a minimum of €1500 ($A2961) if they buy a new car.

Similar scrappage systems also operate in Portugal, Austria, France and Spain, but the FCAI is yet to form a consensus on what form any potential scrappage scheme might take in Australia.

“There is in fact quite a deal of work being done within the industry to look at other possible (sales stimulus) measures that might be contemplated should circumstances warrant, so there is a lot of thought going into that and there is indeed a range of options there,” said Mr McKellar.

Mr McKellar said that any potential Australian scrappage scheme could not exclusively favour local manufacturers because imported vehicles, which now comprise about 15 per cent of vehicles sold here, were a valuable part of the industry.

“I think we’re all concerned to achieve is an outcome that would help to underpin economic activity,” he said.

“That would help to save jobs in the Australian industry wherever those jobs might be, because I think the industry across the board – whether it is manufacturers or importers – we all make a significant contribution to the national economy and I think that has to recognised.” Mr McKellar said that because scrappage schemes were directed at private buyers, such government incentives would compliment the Rudd government’s tax subsidy for business or fleet buyers.

He said he supported the principle of scrappage systems in general, especially for countries with an older-than-average ‘carpark’ age.

“Anything that helps to accelerate the turnover of stock of vehicles in the Australian market is worthy of consideration,” he said.

“It has to be acknowledged that in recent years the average age of the Australian vehicle fleet has been coming down and that’s a reflection of the fact that new car sales have been strong – certainly up until the impact of the current economic circumstance. It’s also a reflection that vehicle affordability remains at record levels.

“These sorts of things have been fundamental in encouraging people to turn their vehicles over more rapidly and that has helped to bring down the average age of the vehicle fleet here in Australia. But it’s a long-term process and we’ve got to see that process continue into the future.” The SMMT says there are many reasons to support scrappage schemes that promote the uptake of new vehicles, including the fact that new diesel cars emit 95 per cent less soot or particulants than those built 15 years ago, and the fact that the average car has reduced its CO2 output by 17 per cent since 1997.

According to the SMMT, compared to 2006 figures, the energy required to produce each vehicle is down 12 per cent, while water use is down nine per cent and waste to landfill is down 25 per cent. The SMMT also says CO2 emissions per vehicle produced have fallen 14 per cent in the last year and by 45 per cent since 1999.

A 2002 study by the Commonwealth Department of Environment and Heritage, which canvassed the environmental impacts of ‘end-of-life’ (ELV) vehicles found that more than 500,000 vehicles enter the waste stream each year in Australia.

It said that number would increase “at an escalating rate as the result of the continuing upward trend in the rate of vehicle ownership, the decreasing average age of vehicles, and the declining cost effectiveness of owning older vehicles”.

In 2002, it estimated that more than 750,000 vehicles could be scrapped each year by 2010, but it also found that recycling rates in the automotive industry were higher than in other consumer industries because of demand for their metal, most of which became concrete reinforcement or fencing wire. The government study found that more than 90 per cent of ELVs reached recycling facilities.

Some opponents of scrappage schemes cite increased production of unrecyclable materials from vehicles, known as ‘shredder flock’.

The 2002 ELV study found that between 65 and 75 per cent of ELVs by weight were recycled, representing their metal components, which equated to about 455,000 tonnes of recycled metal annually. It found that the balance of ELVs – 50 per cent of which is plastic or foam – was reduced in volume by 90 per cent.

It also found that ELVs constituted a significant source of waste and that “negative environmental impacts may be occurring through the landfilling of heavy metals, hazardous fluids and other materials contained in shredder flock”, levels of which are expected to increase as the metal content in vehicles declines.

But it also said that “there is a lack of information on the composition of shredder flock and the extent of any environmental releases occurring through current disposal arrangements in Australia” and that “significant energy and emission savings might be possible by increasing the level of recycling of plastics from ELVs”.

It concluded that increasing the level of disassembly and recycling of ELV materials would entail significant additional costs, with European experience valuing the process at around $US200 ($A300) a vehicle.

According to the Australian Bureau of Statistics, the average age of passenger vehicles in Australia has fallen from 10.1 years in March 2003 to 9.7 years in March 2008.

A year ago Tasmania had the oldest fleet with an average age of 11.9 years, with 30.8 per cent of vehicles manufactured before 1993, followed by South Australia with an average age of 11.1 years. The Northern Territory had the youngest fleet in Australia with an average age of 8.9 years.

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