Canadian makers,dealers ask for $3,500 incentives to scrap old clunkers

Car makers and dealers are urging the federal government to pay people $3,500 to scrap old clunkers and buy new vehicles.

Representatives of the Canadian Vehicle Manufacturers' Association and the Canadian Automobile Dealers Association applauded the steps the government has taken to support the struggling auto industry, but said they'll come to naught unless consumers start buying.

If Ottawa invests $350 million - a pittance compared to the billions it has spent bailing out Chrysler and General Motors - it could stimulate sales of 100,000 new vehicles, Richard Gauthier, president of the dealers' association, said Friday at a news conference in Ottawa.

"So far government has been tremendously supportive of our industry and has helped ensure it remains viable," Gauthier said.

"However, consumer confidence has been shaken by the state of the economy, and we need to give them reason to get their older, higher-polluting vehicles off the road."

Gauthier and Mark Nantais, president of the vehicle manufacturers' association, called on Ottawa to create a scrappage program similar to those on offer in the U.K., France and Germany.

Under the proposal, the government would offer consumers a $3,500 incentive to trade in a used car that's at least 10 years old for a new one. The program would last for one year or until the funding was used up, whichever came first.

Gauthier said the program could be funded in large part by the $92 million already set aside for a smaller scrappage program and by the increase in GST revenue from increased vehicle sales. Assuming an average car price of $20,000, sales of 100,000 new vehicles would generate $100 million in GST revenue.

In addition, a robust vehicle scrappage program would also boost the struggling economy, Nantais said.

"This will kickstart the consumer confidence needed to get people into showrooms and actually purchasing new cars. We must complete the stimulus equation by addressing demand," Nantais said.

In Germany, a program that pays consumers euro2,500, or more than C$4,000, to trade in their used cars has done wonders to boost new vehicle sales, Gauthier said. New vehicle sales in Germany increased by 20 per cent in April and a whopping 40 per cent in May, largely on the strength of the scrappage program.

By comparison, Canadian sales were down by 17.8 per cent in April and 16.5 per cent in May.

Critics of scrappage programs say they simply boost vehicle sales in the short term but prompting consumers who were already planning to buy a new vehicle to head to the showroom a few months early.

Ford Canada president and CEO David Mondragon said a robust scrappage program would help offset almost a third of vehicle sales lost to the recession.

"Our industry this year is trending down close to 20 per cent right now, so that's a nearly 300,000-unit decline on a year-over-year basis," said Mondragon, who has been an outspoken proponent of an improved scrappage program.

"If we could claw back 100,000 of those units, it would hugely offset the decline and stabilize our industry," he added.

Canada does offer a scrappage program already, but critics have variously described it as "a joke" and "useless."

Under the current program, consumers can receive free transit passes, membership in a car-sharing program, money towards a new bike, $300 in cash or a $500 rebate on the purchase of vehicle built in 2004 or later.

However, the incentives vary by province. New Brunswick and Prince Edward Island are the only provinces in which you can get the rebate. If you live in Ontario, Manitoba or Saskatchewan, your only option is the $300 in cash.

Last month, Industry Minister Tony Clement said Ottawa is closely watching a similar proposal that's winding its way through U.S. Congress but doesn't want a program that will pay consumers for their old clunkers only to have them resold and go back on the road.