Scrappage scheme in Europe impacts auto exports from India to Europe

21-Oct-09

A scrappage program is a government budget program to promote replacement of old vehicles with modern vehicles and generally has the dual aim of stimulating the automobile industry and getting rid of inefficient, high emissions vehicles. Many European countries have introduced large-scale scrappage programs as an economic stimulus to increase market demand in the industrial sector during the global recession that began in 2008. Scrappage programs were touted with different names, mostly referring to an environmental benefit. In Germany the economic stimulus program was called "Umweltprämie" and "Ökoprämie" in Austria. The Italian "Incentivi alla rottamazione" and French "Prime à la casse" require the new car to meet modern emission standards. The German scrappage incentive scheme and the British scrappage scheme do not have such requirements, and the UK scheme was drafted to provide financial support to the auto industry. UK’s scrappage incentive scheme is having a positive impact in reducing average CO2 with about 70% of all new registrations sold being smaller, safer, more fuel efficient models. The scheme should help to sustain demand into 2010 and have a positive impact on UK manufacturing and new car registrations. However, exports by Indian small car producers such as Maruti Suzuki and Hyundai Motor have started shrinking as scrappage schemes in various European markets are set to lapse by the end of the year. These automakers witnessed a 35-40 % jump over the past few months by incentives offered by Germany, France and the UK to help owners of older cars and vans buy new fuel-efficient vehicles. Germany and Austria have already concluded their scrappage programs and other countries are expected to wrap up their schemes by December. So, as exports to Europe are likely to normalize.