Time to scrap the scrappage schemes?

CarScrapThis has been the year we all became familiar with the term “scrappage scheme”. It refers to governments subsidies (sometimes backed by the auto industry) given to consumers for buying a new car and scrapping their old one. Although some countries introduced these kinds of schemes long before the economic downturn, they spread around the globe in response to the slump, with France leading the way in December 2008.

The schemes have generally been presented as pro-environment, often with names like the Austrian “Okopramie” (Eco Premium). There is at least some evidence to back up the green claims:  In the US, for example, in the month the scheme ran, the top trade-in was the Ford Explorer 4Wheel Drive; while the Toyota Corolla and the hybrid Prius were top-sellers, luxury car sales plummeted. Compared with a year before, 18% fewer BMWs sold in the US in August, the month of most “cash for clunkers” transactions. In the same month, Ford sales were 17% higher than in August 2008. But not thanks to their gas guzzlers.

The issue of when it becomes environmentally beneficial to scrap a car is hotly contested. Professor Baback Yazdani, Dean of Nottingham Business School, UK, suggests that when an average car reaches four to six years old, its emissions make it greener to invest in a new car. Others argue it is never green to replace a roadworthy car with another car.  Willem Buiter, Professor of European Political Economy at the London School of Economics and Political Science, and no environmentalist, wrote: “It’s like being paid to burn down your house to encourage the residential construction industry”.

Professor Buiter and others make another point. If the schemes are short term, then people will probably buy sooner than they might otherwise. So after the scheme ends, sales will fall. This briefly delays bankruptcies and unemployment, but it does not effectively protect the car industry.  If governments fund the schemes long term, then demand might stay artificially high – good for the car industry, but worse for the planet. And it would mean a new form of protectionism. Protecting national car industries has always been the primary aim of the scrappage schemes. Governments reason that the recession risks destroying car industries so that “when” prosperity returns there will not be the capacity to take advantage. Governments also get more tax revenue from a prosperous economy.

It’s taken for granted that the car industry is an essential part of national economies. As the Managing Director of Nissan UK, Paul Willcox, said when the UK extended its scheme, it “has rightfully placed the car industry at the top of the economic agenda where it belongs”. And President Sarkozy promised, “La France ne laissera pas tomber son industrie automobile”(France won’t give up its car industry). As one country adopted a scheme, others felt they could not be left behind.

Keynes said in an economic downturn there could be a “liquidity trap”. Consumers may stop spending because they fear recession. Demand falls; bankruptcy and unemployment rise. Demand falls further, so governments want us to spend our way out of recession.

Much of the opposition to scrappage schemes comes from the right. They argue the state should not take on more power and interfere in markets. This would at least be consistent with their approach to other industries in decline. A taxpayer does not have a choice about supporting the car industry and may never want to or be able to benefit from the scrappage scheme. These arguments are similar to what might be heard from many carbusters, who could find themselves with some very strange bedfellows in the coming months. Why should we all subsidise an industry which damages the planet? Would resources not be better used in unhooking us from dependence?

Some of the schemes point to how they could be applied in a truly green way. The Canadian scheme “Retire Your Ride” offers cash in exchange for an old car, or alternatives like a bicycle, public transport pass or membership of a car sharing scheme. Here perhaps is a model that can be developed, along with employers’ incentives as in Belgium, Britain and Holland that encourage cycling. These schemes, coupled with a movement towards more sustainable production in the auto industry, and the kind of “green new deal” John Urry outlined in Carbusters #39, could be the key to help individuals and the economy kick their car habit.

article and illustration by Roger Bysouth

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