Scrappage incentives revive car demand

Publication date: 02 July 2009

Scrappage incentives revive car demand

Car sales rose in several big European and Asian markets last month, lifted largely by government scrapping incentives aimed at reviving consumer demand. The numbers give weight to the notion that stimulus measures are pulling the global motor industry out of its deep downturn, but carmakers and industry analysts warn that sales could fall again when they expire.

Scrapping bonuses, which encourage consumers to trade in old cars for new ones, lifted vehicle sales in Spain, France and South Korea in June. Registrations of new cars rose by 7.1 per cent in France – Europe’s second-largest car market – and fell by a smaller year-on-year 15.9 per cent in Spain’s shattered automotive market in June, as the bonuses encouraged more buyers back into showrooms.

Spain’s year-on-year sales decline was narrower than the 38.7 per cent drop in May, and qualified as good news for one of Europe’s worst-performing car markets this year. Spain introduced its €2,000-per-car ($2,835) scrapping bonus in May. South Korea’s Hyundai Motor said on Wednesday its sales rose for the first time in eight months in June on the back of a government scrappage programme. The country’s largest carmaker reported a 9.6 per cent rise in its global vehicle sales on a year ago, as consumers rushed to take advantage of tax incentives on car purchases, which expired at the end of June.

In Britain, which introduced a £2,000-per-car scrappage ($3,300) scheme in May, a Confederation of British Industry survey published last week showed car sales were their “least negative” last month since May 2008. The bonuses have breathed life into moribund car markets, but carmakers say the revival could be short-lived if they are not extended into next year. “If it weren’t for the scrap schemes, things would be catastrophic this year,” said Walt Madeira, manager of sales forecasting for Europe with CSM Worldwide.

The CCFA, France’s motor industry association, warned that ending the incentives later this year would be “delicate”.

In India, efforts by the government to revive the economy showed partial success as sales of both cars and motorbikes picked up in June. Maruti Suzuki, the country’s largest carmaker, on Wednesday reported a 9.5 per cent rise in domestic sales in June compared with a year earlier. Mahindra & Mahindra’s vehicle sales rose by 24 per cent.

Hero Honda Motors, India’s largest motorcycle producer, reported a 24 per cent jump in its June sales.

In Japan, sales of full-sized cars and trucks fell by 14 per cent in June, according to the Japanese Automobile Manufacturers Association. But the rate of decline was the slowest this year.

Honda, Japan’s second-largest carmaker, reported its third consecutive monthly sales gain of 5.7 per cent. Toyota, the biggest carmaker, was lifted by a surge in orders for the new version of its Prius hybrid, although it still suffered an overall 11 per cent sales decline for its combined Toyota and Lexus brands. Of the top three Japanese manufacturers, Nissan fared the worst with a 21 per cent fall.

Source: Financial Times