Is ‘Cash For Clunkers’ the Answer to the Car Industry’s Problems?
The American government is following in the footsteps of many European countries and proposing a ‘cash for clunkers’ scheme in an attempt to persuade consumers back into the flagging car market. The scheme will offer an incentive of up to $4,500 to owners of old cars getting 18 miles per gallon (mpg) or less if they upgrade to a vehicle that gets at least four mpg more, so people could trade in a gas-guzzling 4×4 and buy a Honda, Nissan or other smaller more efficient car in its place. The idea is that the chance of getting money back on purchasing a more efficient car will show potential customers that it makes good financial sense, but can a scheme like this really work in the long run?
A similar incentive was introduced in the UK in May, giving buyers £2000 towards buying a brand new car when they scrap one over 10 years old. Since the scheme began it has taken over 35,000 orders, not enough to reinflate the car industry but certainly enough to make a difference. The question is how long these results can continue, once the number of eligible car owners dwindles and the money for the incentive starts to run out. Recent predictions by a chief executive at French automakers Renault suggest that the time of crisis will continue for few years yet, and that the numbers of people wanting to buy a Renault were unlikely to return to normal levels any time soon. So although government cash incentives are managing to persuade buyers in the short term, it would be a huge blow to manufacturers if the list of potential buyers is exhausted before the recession is over.
And obvoiusly it’s not only motoring that has been hit by the global recession, money is tight for everyone. Giving consumers a cash incentive is a good idea but compared to the cost of a new car it doesn’t go very far. It’s not as if you could trade in your old banger and buy a new BMW in its place, and a lot of people just wouldn’t consider making such an expensive purchase when they’re already struggling with debt and the uncertain economic climate. The scrappage schemes are a short term solution, but should help to rebuild public confidence in the car industry, and should also help to enable people who could only have considered buying second hand to look at new cars instead.
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