Scrapping bonus to boost sales of new vehicles

This would stimulate sales and increase volumes for many manufacturers and component makers whose bottom lines had been negatively affected. The recommendations follow a similar move by the German and US governments.

Early this year Germany called for its citizens to scrap cars older than nine years in exchange for a subsidy of ß2500 (R30,000) to buy new cars which were smaller, safer, fuel-efficient and environmentally friendly.

The move elicited a huge response in that country, with smaller cars selling like hot cakes. So far, 134,000 people have applied for the scrap bonus, and the number is reportedly rising by 7000 a day.

Earlier this week, US President Barack Obama announced a US$5000 (R50,000) subsidy to Americans to trade in older and less fuel-efficient vehicles.

South African industry players said the move would kill several birds with one stone should it be implemented domestically - by stimulating the sales of new vehicles, saving the environment and removing old and dangerous vehicles from South African roads.

National Association of Automobile Manufacturers (Naamsa) director Nico Vermeulen said no specific programme had been suggested to the government, but a general discussion on it had taken place and Naamsa believed such a move could work in the long term.

“It makes sense from an environmental point of view and from the vehicle safety point of view, because you are removing older, unsafe and environmentally unfriendly vehicles from the road,” he said.

However, as this could only be implemented as a long-term solution for the industry, the government should focus on what was possible and practical in the short term. He said access to loan finance to improve cash flow and a series of support measures were what most players in the industry needed to survive in the short term.

National Association of Automotive Components and Allied Manufacturers (Naacam) president Roger Pitot echoed Vermeulen‘s sentiments.

“From a practical point of view it might work, but where is the money going to come from? You are talking about huge amounts. I don't think the South African government has that money. If they want to spend, they should rather do so by supporting manufacturing.”

Trade and industry director general Tshidiso Matona, who is heading a joint task team entrusted with looking at various ways to assist the motor industry, said the sector had proposed something similar to what was happening in Germany and the US.

“We are looking at the feasibility of something like that but I can't pre-empt whether we will go along with it. It is one of the suggestions that they have made.

“It has been done in other jurisdictions, it has been done in Germany and one or two other countries. In theory it is one way to stimulate demand. However, there needs to be a budget for it, and currently we have no budget for it. But our experts are looking at all these ideas,” he said.

National Union of Metal Workers of SA (Numsa) general secretary Irvin Jim said the idea could work domestically but it could not be imported to South Africa as it was.

“There is nothing we shouldn't do to stimulate the industry,” he said. The Reserve Bank, he said, should cut interest rates by a further 250 basis points if any impact was to be made. The government, he said, should also consider subsidising salaries of motor industry workers who had taken salary cuts because of short time.

At Maritime Motors, Arthur Mutlow said that if the government had a budget for the taxi recapitalisation programme, it could also create a budget to subsidise the purchase of new vehicles.

“It's tough and every bit of help we can get from the government is welcome,” he said.

Source: The Herald

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