Last week, Union Minister Nitin Gadkari announced the vehicle scrappage policy in the Lok Sabha, which seeks to achieve the twin objectives of taking old polluting vehicles off the roads and at the same time creating demand for new vehicles.
In the aftermath of the global financial crisis of 2008, many countries came up with vehicle scrappage programmes, as part of fiscal stimulus measures to revive their faltering economies.
Below is an excerpt from a research report from broking firm ICICI Securities, detailing the results of the programme in each of the countries that experimented with it.
US' Car Allowance Rebate System (CARS) i.e. 'Cash for Clunkers', a $3 billion programme launched in July 2009, is the most well-known example of a vehicle scrappage policy. The programme focused on the passenger vehicle segment and 'work trucks' up to 10 tonnes in gross vehicle weight. Vehicles turned in for exchange under the programme needed to be less than 25 years old and have fuel efficiency of up to 18 miles per gallon (mpg). Conversely, new vehicles to be bought had a set upper price limit of $45,000/unit with a minimum fuel efficiency of 22 mpg. The programme offered a purchase rebate on the new car of US $3,500 or $4,500/unit depending on the type of car and difference in fuel economy between the exchanged vehicles. Additionally, users were eligible to retain a part of the scrap value of their vehicle. Vehicles traded-in under CARS were crushed or shredded, making it impossible for them to be resold elsewhere. The scrapping entity, however, was allowed to sell certain vehicle parts (excluding engine and drive train) prior to scrappage.
CARS prove moderately successful, receiving around 6.9 lakh applications during its run, against 1.04 crore total new car and light truck sales of 2009 helping revive sales for an industry battling with a sharp economic slowdown.
Germany’s 'Umweltpramie' or 'Abwrackpramie' scheme (launched in January 2009) worth €5 billion, is the largest of its kind till date, and one that the US version is based upon. Germany’s scrappage programme acted as an economic stimulus for the auto industry and paid out €2,500 as a purchase incentive for a new Euro 4 compliant car in exchange for every car (nine years or older) that was sent to scrap. A total of 2 million new car sales took place under the scheme, accounting for a hefty 71 percent of 2.8 million total new car sales in Germany till August 2009 (up around 27 YoY).
Scrappage activities, however, were not always closely monitored, and ~50,000 vehicles were exported to Africa or Eastern Europe.
Launched in June 2009, China’s scrappage programme was centred on pollution control and offered between RMB 3,000 and 6,000 ($440-880) for newly bought cars and trucks with an initial estimate of getting 2.7 million higher polluting vehicles off the road. Local governments such as Shanghai offered additional incentives of up to $1,100 per unit, bringing a total rebate up to $2,000 in some cases. The programme met with limited success in the initial months as incentives were lower than resale values in some instances, after which the incentive was raised to RMB 6,000–18,000 at the end of 2009. Enhanced incentives paid off, with the government spending RMB 6.4 billion (~$1 billion) in 2010 to subsidise 4.6 lakh new vehicles.
The UK's vehicle scrappage scheme was introduced in 2009 with an initial budget of £300 million, targeting the replacement of 3 lakh vehicles that were older than 10 years at the time. The UK government's grant of £1,000 per new car purchased under the scheme, however, was contingent upon an equal rebate being provided by the automobile firm. During its tenure, the programme accounted for around 20 percent of all new cars sold within the UK, with average emissions of purchased vehicles 26.8 percent lower than the scrapped vehicles.
Canada’s 'Retire Your Ride' scrappage programme of January 2009 was a fruitful one and differed from such initiatives in other countries in its intent. The thrust of Retire Your Ride was towards retiring older, more polluting vehicles instead of aiding fresh car sales. As such, it targeted vehicles manufactured up to 1995 (accounting for just 27 percent of all on-road vehicles at that point but two-thirds of vehicular pollution).
The government stayed away from providing purchase incentives, with programme benefits limited to a choice between C$300 in cash and a public transit pass or car-sharing membership programme. The scheme owed much of its success, however, to additional incentives offered by automakers (up to C$1,000 by Hyundai, up to C$1,500 by Chrysler, and up to C$3,000 by Ford and General Motors each) as well as other rewards like charitable tax receipts provided by different provinces.
The programme helped permanently retire 1.2 lakh vehicles, much higher than the initial target of 50,000 vehicles.
For the full report click here
First Published: IST