The federal Liberals are being pressed to implement a new scrappage program — worth 10 times the $300 per vehicle offered during the Great Recession a decade ago — as a way to bring pandemic-weary consumers back into the car market.
“The last scrappage program that Canada had wasn’t very generous,” said Brian Murphy, vice-president of research and analytics at Canadian Black Book. “I don’t know that $300 gets a lot of consumers off the couch to go to a car dealership to buy a new car. It would be nice, but I don’t think $300 would do it.”
Instead, the auto industry is urging the Liberals to institute a “time-limited program of consumer incentives in the range of $3,000 per scrapped vehicle,” either through direct payments or sales-tax forgiveness. That’s according to an April 22 letter to Prime Minister Justin Trudeau that was signed by the Canadian Automobile Dealers Association (CADA), Canadian Vehicle Manufacturers’ Association and Global Automakers of Canada (GAC).
On May 4, Trudeau told reporters in Ottawa that his government was looking at how to help industries across various sectors. Any additional stimulus would be on top of such programs as the 75-percent wage subsidy for employers as well as the Canadian Emergency Response Benefit for workers who lost their jobs because of COVID-19.
The federal government last oversaw a scrappage program, known as Retire Your Ride, from 2009 through 2011. Consumers who returned a vehicle made in 1995 or earlier were given $300 or other incentives, including transit passes and bicycles. The program resulted in about 120,000 vehicles being scrapped nationwide, according to the Toronto Star.
Analysts who spoke with Automotive News Canada said any new program would need to be much larger to provide a significant boost to depressed sales in a bleak economy.
“A multithousand-dollar scrappage program instrument [would] help because it’s going to tip customers that are sort of ... on the edge or on the cusp of buying,” said Robert Karwel, senior manager of J.D. Power’s automotive practice in Canada.
“They have reasonably good employment and see their prospects of staying employed as reasonably good.”
The cost of such a program would depend both on the heft of its incentives and how many vehicles would be targeted. About 11 million vehicles in Canada are 11 years old or older, according to an estimate by auto analyst Dennis DesRosiers.
If 120,000 vehicles were scrapped — as with the last program — at $3,000 per vehicle, it would cost the federal government about $360 million. Despite that, a scrappage program could appeal to the federal government because of the positive environmental impact of taking older, more inefficient vehicles off the road, said GAC President David Adams.
“That would make some sense, I think, from the federal government’s perspective, as they’re trying to maintain their climate-change agenda in the midst of a situation where their largest trading partner [the United States] has thrown that to the wind.”
Many automakers criticized Retire Your Ride for not being significant enough to get people to turn in their old vehicles, especially when compared with the Cash for Clunkers program in the United States that gave consumers vouchers valued at between $3,500 and $4,500. Several automakers in Canada — including Ford, General Motors, Chrysler and Hyundai — launched their own programs to supplement the Retire Your Ride incentives with additional credits.
Adam Jonas, an auto analyst with Morgan Stanley, said Cash for Clunkers led to about $15 billion in vehicle purchases.
“It was geared toward lower-middle-class people who would normally buy used cars,” Jonas said on an April 27 podcast by sibling publication Automotive News.
“It can make a real difference in working capital back to ... car companies and suppliers.”
Any new U.S. scrappage program would have to be “on steroids,” he said. Jonas thinks the U.S. government could offer $5,000 (Cdn $7,000) per vehicle scrapped. About 80 per cent of vehicles produced in Canada are exported to the United States.
TAX HOLIDAY, JOB INSURANCE
In their letter to Trudeau, the industry groups also signaled support for a sales-tax holiday on all new-vehicle sales in Canada as a way to “quickly encourage consumer vehicle purchases.”
The CADA also supports a proposal for the federal government to create a national job-loss insurance fund. The plan, spearheaded by Ontario new-vehicle dealer Michael Carmichael, would allow the government to underwrite jobloss insurance nationwide.
The measure could prove to be crucial to selling new vehicles because consumers worried about being laid off could feel more confident knowing that insurance would cover them if they lose their jobs.
“This could be very cost effective versus just dumping money on the balance sheets of multinational corporations,” Carmichael said. Murphy of Canadian Black Book said such a program could help boost consumer confidence as long as it is structured so that it doesn’t ignite controversy.
“There would have to be some restrictions around it,” he said. “Maybe there’s a price cap because it may not be politically attractive for the government to help people make payments on extremely expensive cars.”