Scrappage program

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

Scrappage programmes 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 is 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" (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

Austria

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
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

In June 2009, a nationwide scrappage programme 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

The scrappage scheme in France was introduced on January 19, 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 » in 2017 which broaden grant eligibility to used cars. It requires cars to emit less that 130g/km of CO².

Germany

The scrappage scheme of Germany has been the largest so far. Every owner of a car being older than nine years was entitled for a scrappage premium of €2,500 when buying a new car. 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. On March 25, 2009, the German Government decided to continue the scrappage scheme until the end of year. A German think tank estimated that the net impact of the program on the German budget will be €2,500,000,000.[6]

The impact on automakers has been varied. Ford has benefited from high sales of the Ka, Fiesta, and Fusion—together up 56% in April 2009 from a year before. However, luxury German automakers like BMW, Mercedes-Benz, and Porsche have had little benefit from the program and may have customers who have opted for cheaper, smaller cars instead.[7]

German authorities discovered an illicit scheme through which an estimated 50,000 supposedly scrapped vehicles had been exported to Africa and Eastern Europe.[8] 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, thus allowing the illegal exports to occur.[8]

Italy

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.[9]

Ireland

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.[10] The first-ever scrappage scheme ran in the early-1990s.

Japan

Japan introduced a program from 1 April 2009 until March 31, 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.[11] 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.[11][12][13] 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.[11][13]

Luxembourg

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

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.[14]

Norway

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.[15]

Portugal

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 be voted in the beginning of March.

Romania

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[16] 14,607 15,110 16,444 30,466 32,327[17] 189,323 [18] 116,641[19] 44,856[20] 19,900[21] 20,391[22] 25,000[23][nb 1]

Russia

A car scrappage scheme was in effect in Russia between 2010-11. 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.[24][25]

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.[26][27] A total of 500,000 certificates were issued during its first initial run,[25] and 170,000 when it was relaunched three years later in 2014.[28]

Slovakia

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

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.[29]

United Kingdom
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. Many dealers taking part in the scheme offered more than the recommended £1,000, many as high as £2,000 or even £3,000.[30]

The scrappage scheme was intended to provide financial support to the motor industry, after the recession had caused new car sales to drop.[31] It is largely assumed that newer cars include environmental benefits, however Economist Willem Buiter questioned environmental benefits of the programme.[32]

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.[33]

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[34] and Kia Picanto.[35]

United States
The Toyota Corolla was the CARS program's top seller.[36]
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,[37] and ended on 24 August 2009; as the appropriated resources were exhausted.[36][38]

The initial $1,000,000,000 for the system was exhausted by July 30, 2009, well before the anticipated end date of November 1, 2009, due to very high demand.[39][40] In response, Congress approved an additional $2 billion for the program.[39][40][41]

On August 26 the DoT reported that the program resulted in 690,114 dealer transactions submitted requesting a total of $2.877 billion in rebates.[36][38] 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%.[36][42] The Toyota Corolla ranked as the program's top seller and the Ford Explorer 4WD was the most traded-in vehicle.[36]

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.[36] 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[43]

Comparison among selected countries
Comparison of scrappage programs for selected countries
Country Maximum
incentive		 Age
requirement		 Emissions
requirement		 Cost to
government
 Spain$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.[44] Notes: (1) The U.S. program does not have an emission requirement but instead
set a fuel efficiency requirement.(2) The U.K. 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
  • 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.[45]
  • 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.[46]
  • The Economist argued that the program is the kind of policy required to avoid the liquidity trap in times of economic depression.[47] 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."

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See also

Notes
  1. Total number of allowed certificates.

References
  1. "About The Program". Retire Your Ride. Archived from the original on 2009-03-10. Retrieved 2009-08-19.
  2. Michael Wines (2009-10-16). "Beijing's Air Is Cleaner, but Far From Clean". New York Times. Retrieved 2009-10-17.
  3. "China: Shanghai Residents Can Double-Dip With Cash for Clunkers Subsidies". Edmunds.com. 2009-08-14. Archived from the original on 2009-08-17. Retrieved 2009-10-18.
  4. "China's Cash for Clunkers Program to Be Extended". [ChinaAutoWeb.com]. Retrieved 2010-06-14.
  5. "Brown hails car scrappage success." AFP. 22 April 2009. https://www.google.com/hostednews/afp/article/ALeqM5hzCecmCge44zDlAFO_1U-EQModqA
  6. Ewing, Jack. "Car-Scrapping Plans -- Germany's Lessons." 7 May 2009. http://www.spiegel.de/international/business/0,1518,623362,00.html
  7. Ewing http://www.spiegel.de/international/business/0,1518,623362,00.html
  8. Carter Dougherty (2009-08-07). "Driving Out of Germany, to Pollute Another Day". New York Times. Retrieved 2009-08-09.
  9. "Archived copy" (PDF). Archived from the original (PDF) on 2009-04-19. Retrieved 2009-06-30.CS1 maint: archived copy as title (link)
  10. "Irish Scrappage Scheme". Archived from the original on 2010-01-18. Retrieved 2010-01-31.
  11. "Fact Sheet - Japanese Government Incentives for the Purchase of Environmentally Friendly Vehicles" (PDF). Japan Automobile Manufacturers Association. Retrieved 2010-06-06.
  12. "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 2009-04-26. Retrieved 2010-06-06.
  13. Japan to offer cash to scrap old cars, buy new ones
  14. "Tot 1000 euro extra voor oude auto" [Up to 1000 euro extra for old auto]. AT5 Nieuws (in Dutch). Amsterdam. July 1, 2009. Retrieved May 13, 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)
  15. "SCRAP DEPOSIT TAX". Archived from the original on 2010-12-02. Retrieved 2010-08-22.
  16. "Programul Rabla a inceput cu 20.000 de masini si 157 de dealeri" (in Romanian). Standard.ro. 2009-04-11. Retrieved 2009-05-28.
  17. "Over 32,000 cars scrapped in Romanian '09 clunkers program". focus-fen.net. 2009-04-11. Retrieved 2009-05-28.
  18. "Programul Rabla 2010: 189.323 maşini au fost casate" (in Romanian). realitatea.net. 2010-03-21. Retrieved 2010-03-25.
  19. http://www.mediafax.ro/social/bilantul-programului-rabla-pe-2011-cate-masini-vechi-au-fost-scoase-din-circulatie-9077707
  20. http://www.green-report.ro/programul-rabla-2012-a-trimis-la-fier-vechi-44-856-de-masini/
  21. http://www.capital.ro/rabla-2014-in-dezbatere-publica-tichetele-valorice-alocate-electronic-pot-fi-casate-autovehicule-cu-vechime-de-8-ani.html
  22. http://www.mediafax.ro/social/gavrilescu-programul-rabla-va-continua-in-2015-capitala-prahova-si-arges-cele-mai-multe-casari-in-2014-13778861
  23. http://www.automarket.ro/stiri/programul-rabla-2015-mai-are-2600-de-tichete-de-casare-67013.html
  24. http://www.globaltradealert.org/measure/russia-car-scrappage-scheme
  25. http://uk.reuters.com/article/russia-cars-idUKLDE72E0JJ20110315
  26. http://europe.autonews.com/article/20140828/ANE/140829875/russia-pledges-207-million-euros-to-resume-car-scrappage-scheme
  27. https://www.bbc.com/news/business-28970130
  28. https://www.reuters.com/article/russia-autos-scrappage-idUSL5N0QY35920140828
  29. http://www.mityc.es/en-US/AyudasPublicas/Paginas/Plan2000E.aspx
  30. "Scrappage scheme boosts car sales". BBC News. 2009-08-06.
  31. "Car scrapping incentive announced". BBC News. 2009-04-22. Retrieved 2009-05-28.
  32. Buiter, Willem (31 March 2009). "Please torch my car". ft.com. Retrieved 2009-04-28.
  33. "Scrappage scheme to be extended". BBC News. 2009-09-28.
  34. "The top five cars to buy using the scrappage scheme - pictures". The Daily Telegraph. London. 2009-09-10.
  35. "The top five cars to buy using the scrappage scheme - pictures". The Daily Telegraph. London. 2009-09-10.
  36. "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. 2009-08-26. Archived from the original on 2009-08-28. Retrieved 2009-08-26.
  37. "Car Allowance Rebate System". U.S. Department of Transportation. Retrieved 2009-07-16.
  38. Richard S. Chang (2009-08-26). "The Final Numbers on 'Clunkers'". New York Times. Retrieved 2009-08-27.
  39. Matthew L. Wald (2009-08-01). "In Congress, a Jump-Start for Clunkers". New York Times. Retrieved 2009-08-01.
  40. Ken Thomas (2009-08-01). "Cash for clunkers' rebates survive _ for weekend". Washington Post. Retrieved 2009-08-01.
  41. Matthew L. Wald (2009-08-07). "Senate Adds Cash to 'Clunkers' Plan". New York Times. Retrieved 2009-08-07.
  42. Bill Vlasic (2009-08-26). "Toyota Tops List of Cash-for-Clunkers Winners". New York Times. Retrieved 2009-08-27.
  43. 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 2009-10-18. Report No. UMTRI-2009-34. See also Figure 1.
  44. "Car scrappage schemes: Jump-starting the car industry". The Economist. 2009-08-12. Retrieved 2009-08-12.
  45. https://www.oecd.org/greengrowth/greening-transport/car-scrapping.htm
  46. http://europac.net/externalframeset.asp?from=home&id=17052&type=schiff
  47. "Clunky but effective". The Economist. 2009-08-04. Retrieved 2009-08-08.
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