New cars rise from scrap

European governments and automobile companies are aggressively promoting schemes that offer drivers incentives to scrap their old cars and buy new ones.

Germany was the first country to launch a scrappage programme to kick-start new vehicle sales and the idea soon spread across Europe. Now the rest of the world is keenly watching to see if the schemes are successful, according to experts at the Automechanika Middle East show in Dubai.

Programmes have been launched in 12 other nations – Austria, Cyprus, France, Greece, Italy, Luxemburg, Portugal, Romania, Slovakia, Spain, the Netherlands and the United Kingdom.

Owners of cars and light commercial vehicles between nine and 15 years old receive similar incentives in each of the countries to buy a new replacement.

All leading car manufacturers operating in Europe, including BMW, Toyota, Volkswagen, Suzuki, Nissan, Renault, Mitsubishi, Mercedes-Benz, Mazda, Peugeot, Ford, Kia, Hyundai, Audi, Fiat, Chevrolet, Chrysler, Daihatsu, Lexus, Seat, Skoda and Subaru, are taking part.

"The scrappage package introduced in the United Kingdom in May will boost car sales," said David Croxson, Head of International at the Society of Motor Manufacturers and Traders, a British trade association.

"The incentive package to scrap old light vehicles has really stimulated demand for new cars in Europe. The rest of the world, especially the United States Government, is watching the scrappage scheme carefully.

"The UK auto industry has joined hands with the government over the £300 million (Dh1.8 billion) scheme that gives a £2,000 subsidy to anyone owning a car older than 10 years who scraps it and buys a new one. The manufacturer provides 50 per cent of the incentive and the government gives the other half.

He said the UK produced 1.6 million vehicles per year, 70 per cent of which were exported. Automobile production in the UK has fallen by 56 per cent in a short time," Croxson told Emirates Business at Automechanika. "Many factories are working short time – three days a week and just one shift a day."

To qualify for the UK scheme a driver must have a taxed, insured and tested vehicle more than 10 years old that he or she has owned for at least a year.

Motorists have to take their vehicle to an authorised car dealer to confirm their eligibility and the dealer is responsible for all paperwork and for having the vehicle scrapped at an authorised facility. The scheme will continue until February 2010.

Karl Heinz, Managing Director of Germany's BBT Automotive Components, said: "The car scrappage scheme, first introduced by Germany, is spreading to other European countries. Consumers want to make savings and the scheme has boosted new car sales.

"Many owners of old cars have rushed to buy new ones using the subsidy. However, there is a worry that car sales next year will be seriously affected as many consumers who were planning to buy cars in 2010 have instead purchased them in 2009 to make use of the scheme."

Germany's programme is part of a €49 billion (Dh255bn) revival package launched by Chancellor Angela Merkel. Owners of old cars get €2,500 if they scrap a car over nine years old and buy a new one. Car industry experts believe the package will generate 300,000 new car sales that would not otherwise have occurred.

The European Automobile Manufacturers' Association said new car and light vehicle registrations in the European Union fell by 17.6 per cent and 38.6 per cent respectively in the first quarter of 2009 compared with the same period last year.

This is in addition to an eight per cent fall in registrations in 2008 – the largest annual drop since 1993.

However, scrappage deals have boosted sales. New car registrations in Germany rose by 30 per cent in February and new vehicle orders increased by more than 70 per cent. About 20 per cent of new car sales in France in February were the result of scrappage deals.

Many consumers who drove used cars have now taken advantage of the incentives to buy new ones.

Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.