European Scrapping Programs: Good or Bad? Carlos Da Silva Senior Market Analyst Automotive Analysis and Forecasting
The Spread of Government Car Purchase Incentive Schemes Many European Governments have embraced car scrapping incentive schemes = Incentive Scheme = Considering Scheme
Overview of Government Car Purchase Incentive Schemes Coverage 9 countries in West Europe 4 countries in East Europe Incentive Amount From 750 to 2,500 (with budget limitation) Timing Mostly 1 year Conditions Scrapped vehicle Purchased vehicle Car / ~ over 10 years old / 1 year ownership New Car / ~140/160g/km CO 2 Specifics Some countries include LCVs (FRA, GBR, NLD) and/or Used Cars/LCVs in their schemes (DEU, NLD)
European Scrapping Schemes Details Timing Incentive amount Purchased vehicle Scrapped vehicle Germany 01/09 to 2,500 New or used car (up to 12 months) / Min. Euro 4 / Private buyers only >8 years France 12/08 to 1,000 New car <161g or New LCV >10 years Italy 02/09 to 1,500 2,500 (LCV) New car <141g (131g for diesel) or LCV > 10 years and Euro 0,1 or 2 U.K. 05/09 to 03/10 ~ 2,200 New car or LCV >10 years Spain 05/09 to 05/10 2,000 (50% from OEMs) New car with purchase price up to 30,000 >10 years Portugal 12/08 to 1,250 or 1,500 New car 8 to 12 years or >12 years Netherlands 05/09 to 05/10 750 to 1,750 New or used (<8 years) petrol car or LCV / New or used diesel car with DPF > 19 or 13 or 9 years depending on type, fuel, weight Austria 04/09 to 1,500 New car / Min. Euro 4 / Private buyers only >12 years Romania 03/09 to ~ 900 (Ron3,800) New car >10 years Limited to 60,000 units Slovakia 03/09 to 1,500 New car >10 years Czech Rep. 09/09 to 12/10 ~ 1,100 New car with purchase price up to ~ 18,800 >10 years Serbia 03/09 to 1,000 New Fiat Punto (locally built) >9 years
Lessons Learned From Previous Schemes An efficient measure only in the short term Allows to offset the wait and see attitude of customers in replacement / saturated markets People who can afford new cars can and do tend to delay their purchase when a crisis hits Incentives create a windfall effect: between 1994 and 1996, two plans in France immediately boosted sales with +210,000 units But net effect on sales is negligible longer term Net growth at the end of 1997 was only +13,000 units: payback effect of 197,000 units basically cancelled previous incremental sales Mostly anticipated sales but not much new car demand creation
Lessons Learned From Previous Schemes with some collateral damage Incremental sales do not cover overall cost Both French plans (1994 to 1996) cost 1.03bn and only brought back 39 million in incremental VAT, registration taxes, etc. In 1997, the payback effect even added 36 million in losses Discounts become the rule First scrapping measure in Italy in 1997 opened the way to normalized discount: what is the real price? Since 1997, Italy has implemented 7 scrapping schemes that represent 4.5 years of incentivized sales Segmentation trend is only altered momentarily Small segments cars are extremely appealing because they are proportionally much cheaper Small cars reached nearly 45% of French sales in the 1994/1996 period but fell back to 39% as early as 1997 (same level as 1993) Structural impact on parc is not dramatic: too short, too limited! Late 90s/early 2000s, French parc average age kept on increasing despite more than 28 months of incentive: 6.6 years in 1993, 7 in 1997, 7.7 in 2000 1997/2007: despite 7 schemes, Italian parc only stabilized around 7.8 years Financial impacts are negative Impact on longer customer trends is limited
Volume Impact on New Car Sales 14.5 WEU - Total New Passenger Car Regs (million units) 14.0 13.5 13.0 12.5 12.0 11.5 11.0 10.5 +1.2m units in 2009 of which 750,000 in Germany Payback effect is diluted as some schemes run on into 2010 Net effect: +600,000 units (but with 75% from Germany) 10.0 2008 2009 2010 2011 2012 2013 2014 with Scrapping w/o Scrapping
German Scrapping Incentives ( 5bn) Estimated Effect With and Without 2009 Programme 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 Germany - Total New Passenger Car Regs (million units) Immediate Impact: + 750,000 units in 2009 Payback Effect: - 300,000 units (-40%) owing to planned purchases pulled forward from 2010 Net effect: +450,000 units (+60%) -> Why is Germany different?... 2008 2009 2010 2011 2012 2013 2014 with Scrapping w/o Scrapping
Why is Germany Different? German program incentivizes private demand only Private demand was depressed for years German New Car Reg s have stayed mostly below the long-term average for the last decade Private Demand has declined over-proportionally Age of German Car Parc grew 28% (+1.6 years) since 2000 -> Now above European Average => Private Replacement Demand has been delayed year after year => Significant Pent-up demand has built up for years! Many 1 st and probably ONE-time new car buyers (typically used car buyers) as current opportunity is as good as it gets
Why is Germany Different? Q1 2000 Intention to buy a car within the next 12 month - Germany (Balances s.a.) Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 0-10 -20-30 -40-50 -60-70 -80 3.9 3.7 3.5 3.3 3.1 2.9 2.7 Passenger Car New Regs - Germany (Mil. units) 14% 3.8 4% 1% 3.5 0% 0% 3.4 3.3 3.3 3.3 3.3 3.2-2% -2% -3% 3.1 3.1-6% -7% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 15% 10% 5% 0% -5% -10% -15% -90 % o/u Average TIV (units) 10-Year Average 100% New Car Regs by Type of Customer - Germany 9.0 Average Age of Passenger Car Parc (years) - Germany* 8.5 80% 8.0 60% 40% 20% 0% 2002 2003 2004 2005 2006 2007 2008 PRIVATE AUTO RETAIL VEHICLE PRODUCERS RENTAL FLEETS BUSINESS OTHER 2009 (1-3) 7.5 7.0 6.5 6.0 5.5 5.0 WE Average 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 + 1.6 years (+28%) 2007 2008
Germany: Scrapping Incentive Impact on New Car Market Structure Relative Price Advantage of fixed scrapping premium is higher the lower the base price / list price of the new car Price elasticity is higher among typical small / cheap and used car buyers => Scrapping scheme favours small, new and young used cars with relatively low base price! Small / low price car sales grow at the expense of larger and more expensive cars => strong growth in Micro and Small cars (Vol and MS%) Growth in small car sales will accelerate in 2009 Cause: Combination of model offer and price impact from scrapping incentive Decline in large car sales will accelerate in 2009 (esp. Large and Full-size MPV/SUV both Premium and Standard) Cause: Weak business demand due to a combination of poor macro (-> business climate), higher lease rates and a structural shift towards more economical cars in business fleets In 2009 Mainstream brands will gain market share at the expense of Premium/Luxury brands Reversal of above in 2010 and return to normal from 2011/12
Impact on Market Segment Structure Example: Germany Germany - New Car Regs by Segment (thousand units) 3,500 3,000 2,500 170 127 202 599 138 81 193 530 112 104 249 135 119 231 658 2,000 1,500 1,000 500 0 1,138 577 1,261 1,147 1,019 958 655 755 529 190 333 121 267 2008 2009 2010 2014 A B+MPV-B + SUV-B C + MPV-C + SUV-C D + SUV-D E+F MPV-D/E + SUV-E Other
So, good or bad? Direct and immediate impact on sales GOOD Effective support to production activity supports the entire supply chain Indirect impact at more macro levels (GDP, Unemployment, social measures ) Not a nation-only matter (protectionism): German scheme is definitely also helping French and Italian brands and East European countries (plants) Green effect: mechanically improves fuel efficiency, CO2 emission Depending on country and level of incentive, can trigger new demand (Germany) BAD Payback effect on sales after schemes end Financial imbalance: expenses not offset by increased sales (VAT) Impact on selling price: list price is an illusion, bargaining becomes an ingrained behavior Some distortions in who benefits A fairly good measure for the present crisis Definitely is helping soften the 2009 slump Without compromising too much of the recovery phase Largely thanks to the German scheme ( 5bn) More generally, given the weight of the auto sector in Europe, the incentives have wider economic impact
Thank You! Carlos Da Silva Senior Market Analyst Automotive Analysis and Forecasting carlos.dasilva@ihsglobalinsight.com