A scrappage program is a government budget 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, high emissions vehicles from the road. Many European countries have 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 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 casse" (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 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 than 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.
The scrappage scheme in Austria was introduced on April 1, 2009, and it allows customers for €1,500 cash if the car was older than 13 years and the new car would meet the Euro-4 emission criteria. There is a limit of 30,000 cars up to December 2009.
The Retire Your Ride program, administered by the Government of Canada, allows residents of Canada to trade in a vehicle made in 1995 or earlier for a wide range of rewards, such as a public transit pass or C$300.
In June 2009 a nationwide scrappage program was implemented offering rebates of $450 to $900 for trading in old heavy polluting cars and trucks for new ones, the program runs until May 31, 2010. The program is expected to substitute 2.7 million high polluters from the national car fleet.
Eligible vehicles include used minivans, small and mid-size trucks and other mid-size passenger cars that no longer meet the government emissions standards. In addition, the Shanghailocal government is offering similar incentives of $450 to $1,100 per vehicle to its residents who trade in older vehicles, allowing the total subsidy to be as much as $2,000.
After meeting with little success in the first few months, the government raised the compensation to 5,000-18,000 Yuan, or about 732-2,632 US dollars, 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.
The scrappage scheme of France was introduced on January 19, 2009 - the old car would need to be older than 10 years and the new car would have needed to meet a particular CO2 emission standard - it started with €1000 for a car with less than 160 g/km. This was added up for even better emission standards (€5000 for cars with less than 60 g/km - effectively one electric vehicles) 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 the Irish Government.
The scrappage scheme of Germany has been the largest so far. Every owner of a car being older than 9 years was entitled for a scrappage premium of €2,500 ($3,320) when buying a new car. When introduced on 13 January 2009, the program was limited to at most 600,000 cars and a budget of €1.5b. However the car market boomed with an unexpected increase of 40% (March 2009 compared to March 2008) in sales making the program too short running to offer more than a short termed stimulus - estimates showed that the program fund would be used up by May. On March 25, 2009, the government decided to continue the scrappage scheme at least until the end of year. A German think tank estimated that the net impact of the program on the German budget will be €2.5b ($3.5b).
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 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.
German authorities discovered an illegal scheme through which an estimated 50,000 scrapped vehicles have been exported to Africa and Eastern Europe. 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.
In Italy there was scrappage scheme from January 1, 2007, to December 31, 2008, that allowed for €700 plus a tax rebate. A new scrappage scheme is 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. Scrapping incentive for cars is €1,500 but can 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 emits less than 120 g/km) The purchase incentive for new car running on LPG is €1,500, increased to €2,000 if the car emits less than 120 g/km. This can also be combined with the scrapping incentive. Scrappage program ended in December 2009 with delivery of vehicle by March 2010.
Ireland have introduced the scrappage scheme for a second time on December 10, 2009 which offers €1,500 for cars 10 years or older. The discount is on the Vehicle Registration Tax and can only be used on cars that have emissions that do 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. The first scheme ran in the early 1990s.
Japan introduced a program from April 1, 2009 until March 31, 2010 (or until the budget is exhausted), offering up to 250,000 yen (~US$2,500) to trade in vehicles 13 years old or more for new environmentally friendly fuel-efficient cars, according to environmental performance criteria established by the government. The purchasing rebate is 125,000 yen (~US$1,250) if trading for a mini or kei car, which already get preferential tax treatment, built to specifications defined by law in Japan that place limits on size engine displacement and power. The Japanese government also included a tax break on gasoline-electric hybrid vehicles and other low emission cars and trucks, allocating $3.7 billion for the program.
In Luxembourg a scrappage scheme was introduced in January 2009 that allows for a premium if the old car was older than 10 years and the new car to meet CO2 < 150 g/km (1,500 euros) or CO2 < 120 g/km (2,500 euros).
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.
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.
Portugal has increased a scrappage scheme allowing €1,000 for a car being older than 10 years and €1,500 for a car being older 15 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 law proposal to limit CO2 emissions of the new car to 130 g/km. This proposal will be voted in the beginning of March.
In Romania a scrappage scheme was introduced in 2005 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. 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
A car scrappage scheme has been 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 a year) to receive a subsidy of 50,000 rubles ($1,751) if they purchased a new car produced in Russia.
The scheme was resumed in 2014, now offering incentives of at least 40,000 roubles (825 euros) for cars that were at least six years old. A total of 500,000 certificates were issued during its first occurrence, and 170,000 when it was resumed.
In Slovakia a scrappage scheme was introduced that allows for €2,000 (originally €2,500) if the old car was older than 10 years and the new car was below €25,000.
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 10 years or 250,000 km.
The United Kingdom introduced a scrappage incentive scheme in the 2009 budget. Scrapping an old car (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 government and £1,000 funded by the automobile industry. The government's investment was initially limited to £300 million allowing for about 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.
The UK scheme was intended to provide financial support to the motor industry. It is largely assumed that newer cars include a benefit for the environment, however Economist Willem Buiter questions environmental benefits of the program.
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.
123 Internet Group, one of the companies behind the development of the web based system used by Autogreen has now introduced electronic Environmental Waste notices which will be used during the collection and delivery process of the vehicles managed under the scheme.
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 Hyundai i10 and Kia Picanto.
The Car Allowance Rebate System (CARS) was a $3 billion US federal program that helps US citizens to purchase a new, more fuel efficient vehicle when trading in a less fuel efficient vehicle. The program officially started on July 1, 2009 and claims began to be processed until July 24, and ended on August 24, 2009, as the appropriated resources were exhausted.
The initial $1 billion appropriated for the system was exhausted by July 30, 2009, well before the anticipated end date of November 1, 2009, due to very high demand. In response, Congress approved an additional $2 billion for the program.
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. 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%. The Toyota Corolla ranked as the program's top seller and the Ford Explorer 4WD was the top trade-in.
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. 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 2009Economic 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.
The Economist argued that the program is the kind of policy required to avoid the liquidity trap in times of economic depression. 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."