Lately, there’s been a lot of talk in the Australian car industry about ‘Cash for Clunkers’ program. It seems that car manufacturers are the ones pushing that idea and hoping for a government stimulus of sorts. The hope is that the stimulus will work as a method to revive sales of new vehicles in the Aussie car industry.
But hold on a minute. Does the term ‘Cash for Clunkers’ sound familiar to you? Well, that’s because this is not a new idea. The term ‘Cash for Clunkers’ was first coined in the United States just over a decade ago, sometime in 2009. Essentially, this was a way for the government to retire old cars and encourage people to buy brand new vehicles to replace them.
That concept was also popular in Australia in 2010. So why, a decade later, has this idea come up again? Well, that’s what we’re going to figure out in this article.
‘Cash for Clunkers’ is a Scrappage Scheme
First of all, you need to understand that ‘Cash for Clunkers’ is just a catchy nickname for what is known as a scrappage scheme.
Here’s how a scrappage scheme would work, in theory:
Suppose you own a vehicle that is over a certain age as defined by the terms of the scheme (a ‘clunker’, if you will). As part of the scheme, you can scrap your car, and the government will give you a certain amount of money in exchange for it (cash in exchange for your clunker; get it now?).
The idea behind it is so that people will scrap their old, less efficient and less safe vehicles, take the money, and buy brand new models instead. These new models would be more fuel-efficient and also have plenty of cutting-edge safety features that older cars did not have.
If this happens on a large enough scale, the country could see improvements in terms of lower carbon emissions and fewer road accidents and deaths.
But you see, the country, the environment, and car buyers aren’t the only ones that benefit from such a scheme. Since people are getting rid of their old cars and buying brand new models instead of second-hand ones, car manufacturers will see higher sales numbers for their more recent models.
In theory, everyone wins; the country, the environment, the car buyer, and manufacturers. I say ‘in theory’, because there is a debate about whether or not such a scheme is effective. We won’t get into that in this article.
Why Is There a Strong Call for an Australian Scrappage Scheme Now?
So, the question now is: why are a lot of people talking about Cash for Clunkers scheme in Australia right now?
Well, if you look at what has been happening to the Aussie car industry in the past years and especially in 2020, the reasons will become apparent to you.
When the pandemic was in full swing and many parts of Australia was under lockdown, people stopped using the cars they had, let alone gone out and bought new ones. That has led to a sharp drop in profits across the board in the car industry, most notably in terms of new car sales.
According to some sources, this drop in sales numbers is what’s driving car manufacturers to push for a government stimulus in the form of a scrappage scheme.
There’s a lot of optimism about 2021 being a much better year for the automotive industry in Australia and beyond. It’s not surprising, however, that many people choose to remain cautious and pursue as many options for growth as possible.
How Would a Scrappage Scheme Help the Australian Automotive Industry?
Here, the thinking is pretty straightforward: if there were a scrappage scheme in place right now, more people would be buying new cars. That would help revive the Australian car industry, which would then go a very long way towards helping the Australian economy overall.
If you look at any news about this, it seems that the primary motivation behind calls for a scrappage scheme is clearly economic in nature, and there’s nothing wrong with that. If you think about it, it makes a lot of sense.
But of course, the focus on economic benefits doesn’t take away from the environmental and safety benefits that you and I would get from that kind of a scheme.
With a scrappage scheme in place, people will scrap older vehicles and buy new ones, and there would be lower emissions and fewer road deaths as well.
Lessons from Other Countries
The Australian automotive industry isn’t alone in this. As mentioned before, similar programs have run in other parts of the world. So far, we mentioned the example of the United States in 2009.
Right now, though, it seems that a similar effort is happening in India, where certain parties are proposing that the government offer sales incentives and tax rebates as part of a scrappage policy. The end is the same – safer cars, less pollution, and reinvigorated automotive industry.
Even in the United Kingdom, there seems to be a lot of talk about a possible scrappage scheme currently in the works. Major car brands like Mazda and Toyota are already running their own scrappage schemes by offering tempting trade-in deals for their new models.
Is There a Downside to Participating in a Scrappage Scheme?
For the average person who participates in a scrappage scheme, is there a potential disadvantage? Without going lengthily into the pros and cons of a scrappage scheme, here's one potential downside that should get you thinking.
You see, a lot of people are already happy with the car they own even if it’s old and not as efficient as new models. For these people, their car loan has probably been paid off long ago, and they don’t owe anyone any money for that vehicle.
A ‘Cash for Clunkers’ scheme might seem tempting to someone in that position, but these schemes only allow you to buy a brand new car. Doing that would also mean being tied to whatever financing that comes with that vehicle and having to pay off a new car loan for the next few years.
Essentially, the argument here is that a scheme like this would encourage people to take on debt even though they already had a perfectly functioning car beforehand.
Learn More About What’s Happening in the Motoring World
So, what do you think? Would you take part in a scrappage scheme if it became available in Australia? It's definitely something to ponder about. In the meantime, you can follow the blog at Carpart.com.au for updates on this topic.
By Ray Hasbollah