Is ‘Cash For Clunkers’ the Answer to the Car Industry’s Problems?
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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. Getting cash rewards for purchasing a newer vehicle is intended to help persuade consumers that it is a good idea, 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 in exchange for scrapping ones over 10 years old. So far there have been over 35,000 orders for new vehicles on the scrappage scheme, not enough to reinflate the car industry but certainly enough to make a difference. The question is how long will it last, when progressively less and less car owners will still be eligible 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 succeeding in coaxing buyers back into the market 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. Offering consumers the chance to get money back may get them interested but the amounts available are only a small percentage of the cost of a new car. 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 cash incentives are a temporary answer 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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