The automotive industry has largely contributed to the evolution of the
global economy through job creation, living standard elevation and government revenue generation. Everyday life would be difficult to imagine without the mobility provided by the
vehicle industry and governments must ensure the financial viability of the sector in order to further benefit and fund their own public spending and investment of future
development projects through the contributions received from the industry via the many forms of taxation such as job-related income tax, new car sales tax, fuel tax and ownership
tax. Thus, governments worldwide have responded to the industry's plea and launched financial incentives to consumers buying new vehicles in an attempt to boost the depressing
state of demand. This crucial assistance will allow many carmakers to rebalance their high inventory levels and refocus their efforts on future product development and key
requirements that are necessary to ensure survival beyond 2010.
Vehicle ownership has reached stagnant levels in the mature triad markets of North America, West Europe and Japan for over a decade and as a result, car buyer behaviour is extremely mature and decisions to purchase a vehicle are categorized as being rational and structural by nature. Thus, the industry needs to address a vehicle replacement demand cycle as opposed to a new vehicle demand cycle, which has been emerging in developing markets; this is led by the BRIC nations and is cyclical in nature. Car buyer behaviour in these markets is in the infant stages and emotional purchases have refreshed the industry in recent years and led to job creation through value-added manufacturing and a significant rise in living standards. Nevertheless, the current state of the global economy has negatively impacted all countries and demand for new vehicles has been hit hard. Consumer confidence levels have reached devastating lows and, as a result, big-ticket purchases such as automobiles have been postponed due to the current volatile labour market and extremely difficult availability of credit that is necessary to finance vehicle acquisitions that have sustained new car sales in mature markets for many years.
Moreover, the global debate concerning corporate environmental responsibility has led governments worldwide to dictate the future supply of vehicles through strict production requirements concerning fuel-efficient applications. In Europe, the EU has an objective to further reduce average car emissions to 120 grams of carbon dioxide by 2012. Now the time has come for governments to also influence consumer purchasing behaviour through the facilitation and availability of financial incentives. Firstly, these measures will soften the blow dealt from the lack of credit availability via the banking sector as liquidity has long been the lifeblood of the industry. Secondly, financial incentives through scrappage schemes will entice consumers to bring forward their future vehicle purchase while trading in older cars that are less likely to provide the owner with the technological advances that have been made over the past decade through research and development with regards to product functionality, engine performance, fuel efficiency and both active and passive safety innovations.
Government incentives range from tax reductions to financing packages of low interest rates that may or may not include the necessary condition of an older vehicle being scrapped. Additionally, many programs will greatly benefit the rising sales demand for environmentally friendlier vehicles with smaller engine displacements and lower CO2 emission levels. CSM Worldwide has determined that 3.0 million vehicle sales in Europe will potentially benefit from recently announced fleet renewal and scrappage schemes in 2009. The following programs have been launched in Europe:
| Start | State Budget | New Car Rebate | Potential | New Car | Max. Age | ||
| Country | Date | (in Millions) | Min. | Max. | Sales | Max. CO2 | Used Car |
| Austria | Apr-09 | 45.0 | 1,500 | 30.0 | Euro 4 | 13 years | |
| France | Jan-08 | 220.0 | 1,000 | 5,000 | 220.0 | 160 gr | 10 years |
| Germany | Jan-09 | 5,000.0 | 2,500 | 2,000.0 | Euro 4 | 9 years | |
| Italy | Feb-09 | *30 | 1,500 | 6,500 | 200.0 | 140 gr | 9 years |
| Luxembourg | Jan-09 | *7.5 | 1,500 | 1,750 | 5.0 | 150 gr | 10 years |
| Portugal | Jan-09 | 20.0 | 1,000 | 1,250 | 20.0 | 140 gr | 10 years |
| Romania | Feb-09 | 60.0 | 1,000 | 60.0 | 10 years | ||
| Slovakia | Apr-09 | 22.1 | 2,000 | 11.1 | 10 years | ||
| Spain** | Jan-08 | 150.0 | 100.0 | 140 gr | 10 years | ||
| UK*** | May-09 | 600.0 | 2,000 | 300.0 | 10 years | ||
| * - Estimate | |||||||
| **Spain - Interest free loan on £10,000 of new vehicle purchase price | |||||||
| ***UK - Rebate will be co-financed 50/50 by government and carmaker | |||||||
A successful incentive program specific to the auto industry may take many forms that are necessary to benefit all stakeholders involved: the government, the individual consumer and the global car industry. There must be clear guidelines that do not underline any form of protectionism that may benefit one carmaker or one group of carmakers over another with regards to a vehicle's manufacturing origin or a carmaker's national identity as today's large auto companies are truly global companies in every imaginable way, from the product conception phase in R&D, through to the manufacturing facilities and partnering supplier base and onwards to the transportation methods, sales dealerships outlets and promotional marketing channels, resulting in a truly global workforce.
Therefore, an individual country's tailor-made incentive program must envision a global solution for the industry and in turn the resulting benefits will allow government policymakers to tackle a multitude of significant issues that are hampering their struggling economies. Firstly, increasing demand will provide more finance to carmakers that have invested resources in future pro-environmental vehicles. Secondly, millions of manufacturing jobs across the globe will continue to be viable and increase consumer confidence levels from the present low. Thirdly, the car fleet renewal will increase the number of low emission vehicles while discarding older, polluting cars. Lastly, governments will greatly benefit from all of the actions stated above and future revenue generation through vehicle ownership costs and employment tax contributions that will cover the immediate cost to fund these programs without losing sight of the visionary contribution towards a more fuel-efficient car fleet.
Walt Madeira may be reached at waltmadeira@csmauto.com.
