Scrapping programs gain support locally

The vehicle parc in Australia is one of the oldest in the developed world. At last count, the average age of road-registered vehicles in Australia was 10.4 years.

Concerned by the decline in new-car sales due to the global financial crisis and the effect that decline may have on the profitability of members and the employment situation, the Motor Trades Association (MTA) is promoting a plan based on an idea already in place in Europe as a model for the Australian market to follow.

What the MTA specifically wants is a government-funded program to offer owners of cars over 10 years old a $3000 incentive to offload those cars at a wrecking yard -- thereby taking a car that could be dangerous and environmentally unsound off the road.

As a bonus to the MTA's members, such a program would likely result in higher prices for used cars between three and seven years old. This in turn would encourage fleets to dump their three-year old cars and buy new ones to replace them. That would help the local new-car industry, as has been seen already in Europe.

"Our submission asks the Government to set aside a maximum of $4.5 billion, spread over three years, which will be plenty to cover the cost," says James McCall of the NSW MTA.

"But it's not just a one-way street. In addition to saving jobs, which is ultimately good for the economy, the Government will get 10 per cent GST on the new car sales."

If the average cost of a new car is around $30,000 and each car scrapped is replaced one-for-one by a new car at the other end of the chain, the plan would be revenue-neutral for the government.

The MTA understands that new-car sales in Germany have risen by as much as 10 per cent since the introduction of a similar plan there. France has also implemented a similar incentive program and 76 percent of British consumers surveyed by the Society of Motor Manufacturers and Traders want a scrappage program introduced there too, according to industry journal, Automotive News Europe. On the other side of the Atlantic, the US Congress is considering a bill entitled 'cash for clunkers'.

The MTA of NSW has already written a submission to federal Treasurer Wayne Swan and its parent, the Motor Trades Association of Australia, is seeking economic modelling data from Access Economics to support the plan.

"We need to help the industry, including 103,000 small businesses that make a living from the car industry and 318,000 workers," says McCall.

"The key is the grant has to be at least equal to what the owner would get if they traded it."