Scrappage program

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.

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.

[1] 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.

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.

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.

[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.

[8] 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.

[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.

[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.

Competitively priced cars from traditional "budget" brands sold particularly well in the United Kingdom while the scrappage scheme was in force.

[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][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.

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] "... 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.

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.