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Scrappage program

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A scrappage program is a government incentive program to promote the replacement of old vehicles with modern vehicles. Scrappage programs generally have the dual aim of stimulating the automobile industry and removing inefficient, more polluting vehicles from the road. Many European countries introduced large-scale scrappage programs as an economic stimulus to increase market demand in the industrial sector during the global recession that began in 2008.

Scrappage programs were touted with different names, mostly referring to an environmental benefit. The Vehicle Efficiency Incentive in Canada was based on fuel efficiency of cars. In Romania, this program was called "Rabla" (the wreck), and was launched by Dacia in 2000. In Germany, the economic stimulus program was called "Umweltprämie" (environmental premium) and in Austria "Ökoprämie" (eco-premium) while most of the public referred to it simply as "Abwrackprämie" (scrappage premium). Other countries have not tried to connect the program title with an environment aspect – still the Italian "Incentivi alla rottamazione" (scrappage incentives) and French "Prime à la conversion [fr]" (scrappage premium) require the new car to meet modern emission standards. The German scrappage incentive scheme and the British scrappage scheme do not have such requirements, and the UK scheme was openly sketched on the target to provide financial support to the struggling motor industry. Similarly, the United States Congress devised a scrappage scheme, commonly referred to as "cash for clunkers," as part of a general Automotive Stimulus package series; however, the voucher is only given when the newer car has a better fuel efficiency compared to the old car.

In the 1990s, many countries had introduced tax rebate programs for new cars that meet a modern emission standard, but, with the Kyoto Protocol; some countries made the public offer dependent on the scrappage of old cars.

Other programs with the same goal of stimulating industry and increasing efficiency include the Cash for Caulkers plan to promote replacing old refrigerators, air conditioners, etc. with newer, more efficient appliances.

Approaches by country

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Austria

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The scrappage scheme in Austria was introduced on 1 April 2009, and it allowed customers a grant in cash of €1,500 if the car was older than thirteen years and the new car would meet the Euro-4 emission criteria. There was a limit of 30,000 cars up until December 2009.

Canada

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Further information: Retire Your Ride

The Retire Your Ride program, administered by the Canadian Government, allows Canadian residents to trade in a vehicle manufactured in 1995 or earlier for a wide range of rewards, such as: a public transit pass or C$300.[1]

China

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In June 2009, a nationwide scrappage program was implemented, which offered rebates of $450–$900 for trading in older, heavy polluting cars and trucks for new ones until 31 May 2010.[2][3] The program was expected to substitute 2,700,000 more polluting vehicles from the roads.[2]

Eligible vehicles included: used minivans, small and mid-size trucks and other mid-size passenger cars that no longer meet the emissions standards set by the Chinese Government. In addition, the Shanghai local government offered similar incentives of $450 to $1,100 per vehicle to its residents who traded in older vehicles; allowing the total subsidy to be as much as $2,000.[3]

After meeting with little success in the first few months, the government raised the compensation to 5,000–18,000 Yuan, or about US$732-US$2,632, for each qualified vehicle at the end of 2009. In June 2010, it was announced that the program would be extended until the end of 2010.[4]

France

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The scrappage scheme in France was introduced on 19 January 2009, where the old car would need to be older than ten years and the new car would have needed to meet a particular CO2 emission standard – it started with €1,000 for a car with less than 160 g/km. This was added up for even better emission standards (€5,000 for cars with less than 60 g/km – effectively one electric vehicle) and a "super-bonus" for the scrappage of the old car.

French car manufacturers are availing of this scheme for new car purchases in Ireland as well, so Irish customers that purchase new French cars can avail of a grant from both the French Government and Irish Governments.

The program was replaced by a new program called « Prime à la conversion [fr] » in 2017 which broaden grant eligibility to used cars. It requires cars to emit less than 130g/km of CO2.

Germany

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A new Honda Jazz on the wreck of a VW Passat: "9,998€ incl. Verschrottungs-Prämie" in Germany, 2009

The 2009 scrappage scheme of Germany has been the largest so far, being a part of the 2009 stabilization policy "Konjunkturpaket II". Following the 2008–2010 automotive industry crisis, with the 2009 German federal election planned for 27 September 2009, every private person that has been owner for at least one year of a car that was at least nine years old was entitled for a scrappage premium of €2,500 (then U$3,320), colloquially called "Abwrackprämie" ('wreck rebate') when buying a new car that was compliant to vehicle emission standard "Euro 4". The old cars, supposedly worth less than €2,500, had to be demolished, rather than exported to other countries where they would continue to pollute, with the original papers sent in with the application.

When launched on 13 January 2009, the program was limited to at most 600,000 cars and a budget of €1,500,000,000. However, the car market boomed with an unexpected increase of 40% (March 2009 compared to March 2008)[5] in sales making the program too short running to offer more than a short-term stimulus – estimates showed that the program fund would be depleted by May. In March, a German think tank estimated that the net impact of the program on the German budget will be €2,500,000,000.[6] On 25 March 2009, the German Government decided to continue the scrappage scheme until the end of year, earmarking €5,000,000,000. This amount lasted only until September 2, the program was discontinued accordingly.

The impact on automakers has been varied. Ford has benefited from high sales of the Fiesta which was made in Cologne, plus the imports Ka and Fusion — together up 56% in April 2009 from a year before. However, those who can afford the luxury German models of BMW, Mercedes-Benz, and Porsche with prices over €50,000 have had little benefit from only €2,500, unlike customers of cheaper, smaller cars.[6]

German authorities discovered an illicit scheme through which an estimated (by the Federation of German Detectives) 50,000 supposedly scrapped vehicles had been exported to Africa and Eastern Europe.[7] In contrast with the U.S. Cash for Clunkers Program which requires dealers to destroy old engines by draining the motor oil and injecting instead sodium silicate, the German program only required the scrapped vehicles to be sent to junkyards, with papers that are easy to falsify, thus "allowing" the illegal exports to occur.[7]

Italy

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In Italy there was a scrappage scheme from 1 January 2007 to 31 December 2008, that allowed for €700 plus a tax rebate. A new scrappage scheme was put in place in 2009. New cars must comply at minimum with Euro 4 + emit a maximum of 130 g/km (diesel) or 140 g/km (other fuels) of CO2. The Scrapping incentive for cars was €1,500 but could be combined with purchase incentive of €1,500 for a new car running on CNG, electricity or hydrogen (increased to €3,000 if it emits exactly 120 g/km and to €3,500 if it emitted less than 120 g/km). The purchase incentive for a new car running on LPG is €1,500, increased to €2,000 if the car emits less than 120 g/km. This could also be combined with the scrapping incentive. The scrappage program ended in December 2009 with delivery of vehicles completed by March 2010.[8]

Ireland

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A skip advertising a scrappage service, 2010

The Republic of Ireland introduced a scrappage scheme for a second time on 10 December 2009 which offered €1,500 for cars ten years or older. The discount was on the Vehicle Registration Tax and could only be used on cars that had emissions that did not exceed 140g/km. In 2010, the scheme value was reduced to €1,250 per scrapped car and the end date for the scheme was set for 30 June 2011.[9] The first-ever scrappage scheme ran in the early-1990s.

India

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The government of India in Union Budget 2021, has introduced Voluntary Vehicle Scrappage Policy to eliminate the inefficient and polluting vehicles. According to the policy, private vehicles above 20 years and commercial vehicles above 15 years will have to undergo fitness test at authorized fitness center.[10] Only those vehicles are that are deemed to be fit will be allowed to run, and rest will be sent in vehicle scrap yard. The government has also planning to introduce "Green Tax" under which transport vehicles older than 8 years will be charged a Green Tax at the time of renewal of fitness certificate, at the rate of 10–25% of road tax.

Earlier entrepreneurs were reluctant to enter vehicle scrappage business[11] in India, but with the formal introduction of vehicle scrappage policy, automobile recycling industry in India will get giant boost.

Apart from the voluntary vehicle scrappage policy, India also has a mandatory vehicle scrappage policy which is applicable in National capital region (NCR), where in any diesel vehicle older then 10yr and patrol vehicles older then 15yr can not ply in the region.

Japan

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Japan introduced a program from 1 April 2009 until 31 March 2010 (or until the budget was exhausted), which offered up to JP¥250,000 (~US$2,500) to trade in vehicles thirteen years of age or older for newer, more environmentally friendly cars; according to environmental performance criteria established by the Japanese Government.[12] The purchasing rebate was JP¥125,000 (~US$1,250) if trading for a mini or kei car, which already receives preferential tax treatment, built to specifications defined by law in Japan that place limits on size engine displacement and power.[12][13][14] The Japanese government also included a tax break on gasoline-electric hybrid vehicles and other low emission cars and trucks, allocating $3,700,000,000 for the program.[12][14]

Luxembourg

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In Luxembourg, a scrappage scheme was introduced in January 2009 that allowed for a premium if the old car was older than ten years and the new car to meet CO2 < 150 g/km (€1,500) or CO2 < 120 g/km (€2,500).

The Netherlands

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The Dutch Government provides a premium of €750 or €1,000 in association with the car industry. The city of Amsterdam provides an additional premium of between €250 and €1,000.[15]

Norway

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In Norway a "Vehicle Scrap Deposit Tax" for all motor vehicles was introduced in 1978. When purchasing or registering a new vehicle, a standard €190 tax (as per 2010) is paid to the Norwegian Customs and Excise Authorities. This tax is refunded when scrapping the vehicle.[16]

Portugal

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Portugal has increased a scrappage scheme allowing €1,000 for a car being older than ten years and €1,500 for a car being older fifteen years if the car is being recycled and the new car has an emission standard of CO2 < 140 g/km. In January 2010, Portuguese Government made a proposal to limit CO2 emissions of the new car to 130 g/km. This proposal was voted in the beginning of March.

Romania

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In Romania, a scrappage scheme was introduced in 2000 by Dacia itself after being bought by Renault, and later, in 2005 by most if all car dealers with the help of the government, and it allows customers a 3,800 lei (1 euro = 4.2 lei) discount if the car was older than ten years. There is no emission restriction of the new car to be bought. Since 2010, one person can scrap up to three cars and/or use the same amount of vouchers in exchange for a new one, but in 2012 this was dropped. In 2014, the value of the voucher was raised to 6,500 lei and the age of the car reduced to eight years.

Number of cars traded

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Cars traded[17] 14,607 15,110 16,444 30,466 32,327[18] 189,323[19] 116,641[20] 44,856[21] 19,900[22] 20,391[23] 25,000[24][nb 1]

Russia

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A car scrappage scheme was in effect in Russia between 2010 and 2011. This allowed owners of light cars older than ten years (that owned the car for at least one year) to receive a subsidy of 50,000 roubles ($1,751) if they purchased a new car built in Russia.[25][26]

The scheme was relaunched in 2014, now offering incentives of at least 40,000 roubles (€825) for cars that were at least six years old.[27][28] A total of 500,000 certificates were issued during its first initial run,[26] and 170,000 when it was relaunched three years later in 2014.[29]

Slovakia

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In Slovakia, a scrappage scheme was introduced that allows for €2,000 (originally €2,500) if the old car was older than ten years of age and the new car was below €25,000 in value.

Spain

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In Spain, there is a scrappage scheme (Plan 2000E) with a special credit scheme for a new car (category M vehicle) to reach a level of less than 120 g/km and trucks (category M vehicle) 160 g/km and if the old vehicle was more than ten years or 250,000 km.[30]

United Kingdom

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Main article: Vehicle scrappage scheme

The United Kingdom introduced a scrappage incentive scheme in the 2009 budget. Scrapping a car which was at least ten years old (registered on or before 31 July 1999) allowed for a £2,000 cash incentive – the money burden was shared, with £1,000 funded by the UK Government and £1,000 funded by the automotive industry. The Government's investment was initially limited to £300,000,000 allowing for approximately 300,000 customers to benefit.[citation needed] Many dealers and car scrapping businesses[31] taking part in the scheme, offered more than the recommended £1,000, many as high as £2,000 or even £3,000.[32]

The scrappage scheme was intended to provide financial support to the motor industry, after the recession had caused new car sales to drop.[33] It is largely assumed that newer cars include environmental benefits, but Economist Willem Buiter questioned environmental benefits of the program.[34]

On 28 September 2009, it was confirmed that a further investment from the Government was to be introduced extending the scheme further. It would now cover cars registered as late as 29 February 2000.[35]

The scheme closed on 31 March 2010.

Competitively priced cars from traditional "budget" brands sold particularly well in the United Kingdom while the scrappage scheme was in force. These included the Korean models: Hyundai i10[36] and Kia Picanto.[37]

United States

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The Toyota Corolla was the CARS program's top seller.[38]
Further information: Car Allowance Rebate System

The Car Allowance Rebate System (CARS) was a $3,000,000,000 US federal program that helps US citizens to purchase a new, more fuel efficient vehicle when trading in an older, more polluting vehicle. The program officially started on 1 July 2009 and claims began to be processed until 24 July,[39] and ended on 24 August 2009; as the appropriated resources were exhausted.[38][40]

The initial $1,000,000,000 for the system was exhausted by 30 July 2009, well before the anticipated end date of 1 November 2009, due to very high demand.[41][42] In response, Congress approved an additional $2 billion for the program.[41][42][43]

On 26 August the DoT reported that the program resulted in 690,114 dealer transactions submitted requesting a total of $2.877 billion in rebates.[38][40] At the end of the program Toyota accounted for 19.4% of sales, followed by General Motors with 17.6%, Ford with 14.4%, Honda with 13.0%, and Nissan with 8.7%.[38][44] The Toyota Corolla ranked as the program's top seller and the Ford Explorer 4WD was the most traded-in vehicle.[38]

The Department of Transportation also reported that the average fuel efficiency of trade-ins was 15.8 mpg, compared to 24.9 mpg for the new cars purchased to replace them, translating to a 58% fuel efficiency improvement.[38] However, a study by researchers at the University of Michigan evaluated the effects of the program on the average fuel economy considering a baseline without the existence of the program, since there was already a trend for buying vehicles with higher fuel economy due to the high gasoline prices of 2007 and 2008, and the economic crisis of 2008. The study found that the program improved the average fuel economy of all vehicles purchased by 0.6 mpg in July 2009 and by 0.7 mpg in August 2009[45]

Comparison among selected countries

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Comparison of scrappage programs for selected countries
Country Maximum
incentive 		Age
requirement 		Emissions
requirement 		Cost to
government
 United States $4500 (~€3167) Under 25 years old No(1) $3 billion
 Germany €2500 (~$3552) Over 9 years old No $7.1 billion
 United Kingdom £2000 (~$3336) Over 10 years old No $500 million(2)
 France €1000 (~$1421) Over 10 years old Yes(3) $554 million
 Italy €3500 (~$5024) Over 10 years old Yes(3) –
Source: The Economist.[46] Notes: (1) The U.S. program does not have an emission requirement but instead
set a fuel efficiency requirement.(2) The UK incentive is split between government and the dealer.
(3) Italy and France required that new cars do not emit more than 160 grams of carbon dioxide per km.

Reception

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  • OECD suggests to measure the "net societal costs" of a scrappage program as a difference between value of destroyed assets, fuel savings, emissions avoided, casualties avoided. Support for the automobile industry is considered a possible intended effect but is not considered in this calculation.[47]
  • Economic forecaster and former Republican Senate candidate Peter Schiff argued that it is economically inefficient to destroy cars in an attempt to stimulate the economy, likening it to the broken window fallacy.[48]
  • The Economist argued that the program is the kind of policy required to avoid the liquidity trap in times of economic depression.[49] The article states that:

    "... the boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a “liquidity trap”. According to his theory, consumers may become so worried about the economy that they cling to as much liquid wealth as possible, cutting their spending sharply and thereby triggering precisely the slump they feared. Moreover, as stimulus policies go, cash-for-clunkers looks to be unusually effective. Admittedly, that is not an especially demanding measure, given that Keynes favoured, if need be, burying money in bottles for people to dig up and spend. Cash-for-clunkers has many benefits beyond simply getting more money passing through the hands of consumers and into aggregate demand."

See also

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Notes

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  1. ^ Total number of allowed certificates.

References

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  1. ^ "About The Program". Retire Your Ride. Archived from the original on 10 March 2009. Retrieved 19 August 2009.
  2. ^ a b Michael Wines (16 October 2009). "Beijing's Air Is Cleaner, but Far From Clean". The New York Times. Retrieved 17 October 2009.
  3. ^ a b "China: Shanghai Residents Can Double-Dip With Cash for Clunkers Subsidies". Edmunds.com. 14 August 2009. Archived from the original on 17 August 2009. Retrieved 18 October 2009.
  4. ^ "China's Cash for Clunkers Program to Be Extended". [ChinaAutoWeb.com]. Retrieved 14 June 2010.
  5. ^ "Brown hails car scrappage success". AFP. 22 April 2009. Archived from the original on 31 July 2012.
  6. ^ a b Ewing, Jack (7 May 2009). "Car-Scrapping Plans – Germany's Lessons". Archived from the original on 29 January 2023.
  7. ^ a b Carter Dougherty (7 August 2009). "Driving Out of Germany, to Pollute Another Day". The New York Times. Retrieved 9 August 2009.
  8. ^ "Vehicle Scrapping Schemes in the European Union" (PDF). Archived from the original (PDF) on 19 April 2009. Retrieved 30 June 2009.
  9. ^ "Irish Scrappage Scheme". Archived from the original on 18 January 2010. Retrieved 31 January 2010.
  10. ^ "Government announces new 'scrappage policy' to remove old vehicles off the road". Archived from the original on 28 March 2022.
  11. ^ Manasvi, Vaidya. "Business opportunity for entrepreneurs in automobile recycling industry India". Scrap Yard India. M Vaidya. Retrieved 2 February 2021.
  12. ^ a b c "Fact Sheet – Japanese Government Incentives for the Purchase of Environmentally Friendly Vehicles" (PDF). Japan Automobile Manufacturers Association. Retrieved 6 June 2010. [dead link]
  13. ^ "Sales Promotion Scheme and 2009 Vehicle Sales Forecasts – Japan: Rebate for purchase or replacement with eco-friendly vehicles". Marklines.com. Archived from the original on 26 April 2009. Retrieved 6 June 2010.
  14. ^ a b "Japan to offer cash to scrap old cars, buy new ones". Reuters. 9 April 2009.
  15. ^ "Tot 1000 euro extra voor oude auto" [Up to 1000 euro extra for old auto]. AT5 Nieuws (in Dutch). Amsterdam. 1 July 2009. Retrieved 13 May 2012. Amsterdammers vangen, als enige in Nederland, tussen de 250 en 1000 euro extra voor hun oude auto (Residents of Amsterdam, the only ones in The Netherlands, can get between €250 and €1,000 extra for their old car)
  16. ^ "SCRAP DEPOSIT TAX". Archived from the original on 2 December 2010. Retrieved 22 August 2010.
  17. ^ "Programul Rabla a inceput cu 20.000 de masini si 157 de dealeri" (in Romanian). Standard.ro. 11 April 2009. Retrieved 28 May 2009.
  18. ^ "Over 32,000 cars scrapped in Romanian '09 clunkers program". focus-fen.net. 11 April 2009. Retrieved 28 May 2009.
  19. ^ "Programul Rabla 2010: 189.323 maşini au fost casate" (in Romanian). realitatea.net. 21 March 2010. Retrieved 25 March 2010.
  20. ^ "Bilanţul programului Rabla pe 2011: Câte maşini vechi au fost scoase din circulaţie". Mediafax.ro.
  21. ^ "Numarul masinilor casate prin "Rabla" a scazut de peste doua ori in 2012". 30 January 2013.
  22. ^ ""Rabla" 2014, în dezbatere publică: Tichetele valorice, alocate electronic; pot fi casate autovehicule cu vechime de 8 ani". 6 March 2014.
  23. ^ "Gavrilescu: Programul RABLA va continua în 2015. Capitala, Prahova şi Argeş, cele mai multe casări în 2014". Mediafax.ro.
  24. ^ "Programul Rabla 2015 mai are 2.600 de tichete de casare". Automarket.
  25. ^ "Global Trade Alert".
  26. ^ a b "CORRECTED – Russia's car scrappage scheme to end in September". Reuters. 15 March 2011. Archived from the original on 5 April 2016.
  27. ^ "Russia pledges 207 million euros to resume car scrappage scheme". 28 August 2014.
  28. ^ "Russia to introduce new car scrappage scheme". BBC News. 28 August 2014.
  29. ^ "Russian government to allocate 10 BLN roubles for car scrappage". Reuters. 28 August 2014.
  30. ^ "2000 E Plan to aid the renewal of the current national motor vehicle fleet – Mº de Industria, Turismo y Comercio". mityc.es. Archived from the original on 7 July 2009.
  31. ^ "Scrap My Car - Best Online Prices & Free Collection - Scrapmycar.net". www.scrapmycar.net. Retrieved 3 February 2023.
  32. ^ "Scrappage scheme boosts car sales". BBC News. 6 August 2009.
  33. ^ "Car scrapping incentive announced". BBC News. 22 April 2009. Retrieved 28 May 2009.
  34. ^ Buiter, Willem (31 March 2009). "Please torch my car". Financial Times. Retrieved 28 April 2009.
  35. ^ "Scrappage scheme to be extended". BBC News. 28 September 2009.
  36. ^ "The top five cars to buy using the scrappage scheme – pictures". The Daily Telegraph. London. 10 September 2009.
  37. ^ "The top five cars to buy using the scrappage scheme – pictures". The Daily Telegraph. London. 10 September 2009.
  38. ^ a b c d e f "Cash for Clunkers Wraps up with Nearly 700,000 car sales and increased fuel efficiency, U.S. Transportation Secretary LaHood declares program "wildly successful"". U.S. Department of Transportation Press Release. 26 August 2009. Archived from the original on 28 August 2009. Retrieved 26 August 2009.
  39. ^ "Car Allowance Rebate System". U.S. Department of Transportation. Retrieved 16 July 2009.
  40. ^ a b Richard S. Chang (26 August 2009). "The Final Numbers on 'Clunkers'". The New York Times. Retrieved 27 August 2009.
  41. ^ a b Matthew L. Wald (1 August 2009). "In Congress, a Jump-Start for Clunkers". The New York Times. Retrieved 1 August 2009.
  42. ^ a b Ken Thomas (1 August 2009). "Cash for clunkers' rebates survive _ for weekend". The Washington Post. Retrieved 1 August 2009. [dead link]
  43. ^ Matthew L. Wald (7 August 2009). "Senate Adds Cash to 'Clunkers' Plan". The New York Times. Retrieved 7 August 2009.
  44. ^ Bill Vlasic (26 August 2009). "Toyota Tops List of Cash-for-Clunkers Winners". The New York Times. Retrieved 27 August 2009.
  45. ^ Michael Sivak and Brandon Schoettle (September 2009). "The Effect of the 'Cash for Clunkers' Program on the Overall Fuel Economy of Purchased New Vehicles" (PDF). Transportation Research Institute at the University of Michigan. Retrieved 18 October 2009. Report No. UMTRI-2009-34. See also Figure 1.
  46. ^ "Car scrappage schemes: Jump-starting the car industry". The Economist. 12 August 2009. Retrieved 12 August 2009.
  47. ^ "Car scrapping schemes – OECD".
  48. ^ "Euro Pacific". Archived from the original on 26 August 2009. Retrieved 24 August 2009.
  49. ^ "Clunky but effective". The Economist. 4 August 2009. Retrieved 8 August 2009.
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