Canadians deserve financial incentives to scrap older, Higher-emitting vehicles. Auto Dealers and Manufacturers across Canada call for an aggressive
Canada’s auto dealers and manufacturers have called on the federal government to help strengthen Canadians’ confidence and the Canadian economy by introducing an aggressive “scrappage” program aimed at stimulating new vehicle sales while removing higher-emitting, less-safe vehicles from the road. Similar programs have already been successfully implemented in other countries, including Germany, France and the United Kingdom.
“Canada would see immediate economic, environmental and safety benefits from a program that encourages drivers to replace older vehicles with new ones,” said Canadian Automobile Dealers Association President and CEO Richard Gauthier. “Germany is a good example where, after implementing a meaningful and simple scrappage program worth $3,800 (CDN), new vehicle sales increased by 20% in April and 40% in May. Prior to the introduction of their program, sales had declined by 14% in January”
The industry’s proposal mirrors the successful German program, including:
- A meaningful consumer incentive towards the purchase of any new light-duty vehicle in the amount of $3,500, provided a used vehicle of at least 10 years or older is traded-in and scrapped;
- Operate for a specific duration (e.g. one year), or until program funding is spent;
- Immediately implemented by enhancing the existing ‘Retire Your Ride’ program.
“A robust scrappage program could increase sales by as much as 100,000 units, which would be a significant benefit to consumers, dealers and their local economies,” said Canadian Vehicle Manufacturers’ Association President Mark Nantais. “Additionally, today’s new more fuel efficient vehicles, are 12 times cleaner than a 1993 model year vehicle and contain the most advanced vehicle safety systems. Removing these vehicles is a triple-win –Environment-Energy Conservation-Safety – for consumers, governments and the economy.”
Canadian new vehicle sales have fallen by 20% or over 141,000 units in 2009 compared to the previous year. This drop in sales has impacted sales revenues by more than $3.5 billion and federal GST collection by at least $175 million.
“The 3,500 new car dealers who are at the heart of nearly every community across Canada are struggling to survive this unprecedented economic downturn,” stated Gauthier. “Given the state of the economy, consumer confidence has been shaken – we need to give them a great reason to get their older, higher-polluting vehicles off the road.”
“Other countries have tried complicated programs involving personal and sales tax adjustments that limit consumer choice and have failed to stimulate the economy,” stated Nantais. “We believe that a simplified scrappage program that allows Canadians to pick the vehicle that best suits their need is also best suited to Canada’s marketplace
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Consumer Scrappage Incentive Proposal
- Meaningful consumer incentive inline with the most successful programs globally. Germany’s has been the most successful with an incentive of €2,500 ($3,860 CDN). Incentives in the program being finalized in the U.S. will range from $3,500 – $4,500 USD ($3,864 – $4,970 CDN). Studies suggest that a 10 old vehicle is worth on average $3,500. In order to be effective, the incentive offered must be commensurate with this average value.
- Incentive would be for the purchase of any new light-duty vehicle provided a used vehicle of at least 10 years or older is traded-in and scrapped.
- Would operate for one year (e.g., July 1, 2009 through June 30, 2010) or until program funding ($350 million) is spent.
- Incentive would be applicable to the purchase of all makes and models of vehicles to maximize consumer choice.
- Would preserve consumer and business choice of vehicles that fit their specific needs and requirements.
- Will provide economic, environmental, energy conservation and vehicle safety benefits.
- Anticipated the program would drive an additional 100,000 new vehicle sales across Canada.
- Results in $2.5 billion in revenues for dealerships and manufacturers:
- Average transaction price of a vehicle in Canada is $25,000
- Generates $125 million in GST revenues for the federal government and tens of millions for provinces through provincial sales taxes.
Environmental, Energy Conservation and Safety Benefits
- Over 19.5 million light-duty vehicles on Canada’s roads:
- Roughly 40% or 7 million vehicles of the on-road fleet is at least 10 years old
- Reduced Smog-Causing Emissions:
- One 1987 model year vehicle produces 37 times more smog-causing emissions than a 2009 model,
- One 1993 model year vehicle produces 12 times more smog-causing emissions than a 2009 model year vehicle.
- Improvements in fuel efficiency given newer vehicles with latest technologies.
- Improvements in vehicle safety as new vehicles are equipped with the most advanced safety systems, such as electronic stability control.
Suggested Program Funding
- Estimated cost of the program is $350 million.
- Government can help offset the costs from existing programs and taxes:
- $92 million from the existing “Retire Your Ride” program
- $125 million (estimated) in additional GST collected
- $65 million (estimated) 2009 Green Levy
- 3,500 new car dealers across Canada.
- Over 140,000 employees at new car dealers
- 1.57 million new vehicles sold in 2008
- Anticipated 1.35 million sales in 2009 – loss of 220,000 units
- $77 billion in retail sales in 2008 – 20% of Canadian total retail sales
- Anticipated drop of $5.5 billion in 2009 due to loss of new vehicle sales
- $3.5 billion in sales tax collected in 2008
- Anticipated drop of $275 million in 2009 due to loss of new vehicle sales
Positive Effects of Simple Scrappage Programs
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1. The federal government has the Retire Your Ride program in place, why is the industry asking for a new program?
While an excellent starting point, the Retire Your Ride program as currently structured has had limited consumer appeal because offering $300 to a consumer is very modest given the cost of purchasing a new vehicle. To stimulate new vehicle sales and economic activity in Canada, along with making the environmental and safety improvements sought under the original program goals, we are recommending the government increase the consumer incentive to be in line with successful fleet renewal programs in other countries, such as Germany’s which equates to $3,860.
2. There are a number of fleet renewal programs globally, including some in Canadian provinces, why is the German program the most successful.
In the current economic environment, the focus of the program should primarily be economic stimulus. Statistical analysis of major automotive markets where fleet renewal programs are in place shows that the more restrictions that have been placed on the program, in terms of which vehicles qualify for the incentives typically based on arbitrary fuel economy thresholds, the less successful the programs have been both in terms of stimulating economic activity and in improving the environmental performance of the on-road fleet.
3. The auto Industry has already received significant government support, why is more needed?”
We applaud the government for the steps taken to support the industry to date. However, despite the actions take to date, consumer confidence continues to slump with vehicles sales down over 20% year to date compared to last year. Stimulating consumer vehicle purchases has the benefit of increasing overall consumer confidence in the marketplace as well as putting money into the local economies.
4. Do fleet renewal programs simply pull forward vehicle sales and have no sustainable impact?
For several months, consumers have been delaying vehicle purchases because of a lack of confidence in the marketplace. This year sales are down roughly 20% compared to 2008. This is having a major impact on industry revenues and is seriously impacting the ability to maintain operations from the dealerships to the factories. Pulling forward vehicle sales would help return sales revenues closer to historical norms in a much shorter timeframe than currently expected.
5. Do all vehicle manufacturers support scrappage programs?
All vehicle manufacturers, either directly or through their associations, are on record as supporting scrappage programs.
6. Which countries have introduced scrappage programs?
To date there are a variety of programs in existence with a wide range of successes in stimulating vehicle sales that are typically tied to the size of the incentive and the complexity and restrictions placed on the purchase of a new vehicle. We are aware of stimulus programs in Austria, France, Germany, Italy, Japan, Luxembourg, Portugal, Romania, Slovakia, Spain, the Netherlands, and the United Kingdom. In the United States, a program is imminent.