Late sales surge as US winds up its car scrappage scheme

Thousands more older vehicles now off the roads
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The Independent Online

Car dealers were last night scrambling to get paperwork to the US government after a late surge in sales under its taxpayer-subsidised car scrappage scheme, which has buoyed sales.

More than 100,000 sales of subsidised vehicles were recorded at the weekend, dealerships reported queues of people waiting for test drives and forecourts ran short of cars in the final hours of the scheme. But the industry has quickly moved on to debating what will happen to sales now that government money is being withdrawn.

Scrappage schemes have been introduced by governments around the world, offering subsidies to drivers who trade in an old vehicle for a new, more fuel efficient, model. By taking gas guzzlers off the road, the plans aim to aid the environment as much as they do the struggling car manufacturers, who have endured an unprecedented sales slump due to the recession.

By last Friday, the US Department of Transportation had recorded 489,000 dealer transactions worth $2.04bn (£1.24bn) in rebates under its cash-for-clunkers scheme and that had surged to 625,000 and $2.58bn by yesterday morning. With the $3bn pot about to run dry, it initially set a deadline of 8pm last night for dealers to get reimbursement paperwork in, and many wrapped up their promotional activities early over the weekend to give themselves time to get the paperwork in order. However, due to computer problems on the government end, the deadline was extended until noon today.

Toyota's Corolla was the top-selling model under the incentive program, with the Honda Civic and Ford Focus second and third. Vehicles produced by GM and Chrysler – both of which are part-owned by the US government after their bankruptcy filings earlier this year – appeared to have benefitted less significantly from the scheme, in part because they are less well known for fuel-efficient vehicles.

Ford, however, has ramped up car production after the scheme drained its backlog of unsold vehicles. It will produce one-third more cars in the third quarter of this year than it did last year, a 15 per cent increase on its original plan, reflecting an improving economic outlook, too.

Analysts were buoyant, despite the end of the cash-for-clunkers scheme. "We look for US auto sales to improve from doomsday to normal recessionary levels," Morgan Stanley analyst Noriaki Hirakata reported. The reasons for the original slump – including less funding by financiers affiliated with auto makers, and the impact on new car sales due to lower used-car prices – were all "normalising," he said.

The boost that cash-for-clunkers has given is expected to have pushed US car sales in August high enough that the industry records its first year-on-year sales gain since July 2007, as the credit crisis was beginning to take hold. The consensus forecast is for sales to slip back again in September.

The US scrappage programme, while attracting more than half a million people into purchases in just two months, was none the less smaller than many schemes introduced in other countries. Germany's programme was worth about $7bn in a car market with annual sales of three million units, and Japan handed $3.9bn in a market of five million annual vehicle sales. That compares to the $3bn in a US market of more than 10 million sales.

Germany yesterday ruled out extending its car-scrapping subsidy and said it was not planning an alternative scheme. It was suggested that ruling party officials were considering giving car manufacturer employees higher tax breaks when purchasing company cars.

Cash for bangers: Schemes around the world

Britain

Some 155,000 people have bought cars since the £2,000 scrappage subsidy started in May. In July, car sales went up by 2.4 per cent, the first rise in 15 months, and the number of vehicles being built stopped contracting quite so sharply. But the £300m pot is expected to run out by the autumn.

Germany

The German scheme is the world's biggest. Introduced in January, the €2,500 (£2,179) subsidy package was limited to €1.5bn. But when car sales ballooned by 40 per cent in March it was extended until the end of the year, adding an estimated €1bn to the pot. There have been scandals over both fraud – 50,000 "scrapped" vehicles exported – and benefits – Toyota says the scheme has created 250 French jobs.

Everywhere else

Scrappage schemes have proliferated across the world. Western European subsidies have a green twist, with carbon emission restrictions on replacement vehicles. There are no such restrictions in Romania and Slovakia.

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