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The Scrap Trap

Optimize Blog - January 26, 2010 - 0 comments

With the impending end of the various car scrappage schemes in Europe and other countries of the world, comes the question of what car sales will look like in 2010.
First, let us accept that the scrappage scheme did exactly as intended and drew buyers back to the showrooms to help manufacturers and retailers through the recession.  Certainly those countries with scrap schemes appear to have faired much better than those without, even though the best figures were seen toward the end of the year and would fail to entirely compensate for the dire start to the year.  So, no problem – government policy that works?
Actually, the fact that it worked doesn’t mean that there are no consequences or that vehicle sales are likely to recover more quickly outside of Europe…
The scrap schemes drew buyers that would not necessarily have bought at that time into a market to take advantage of the cash incentive.  Clearly a large number of these purchasers would have had to buy in 2010 but, instead, chose to buy earlier to take advantage of the scheme.
Despite the millions spent by manufacturers on commercials, the reality is that those buyers will not be back in the showrooms any time soon and so a big slice of the 2010 market has already gone.  In Europe sales are set to fall by more than 10% and it is entirely possible that those manufacturers who saw the greatest gains from the scrappage schemes are likely to take the biggest hits during 2010.
It’s not all doom and gloom though, as many fleet operators have held on to their fleets during the recessionary times and may well be now looking to start replacing aging vehicles.  Clearly fleet buyers will not deliver the same margins as retail buyers but, in the continuing tough economic conditions, as least something is better than nothing.
Elsewhere, demand in countries like China, India and Brazil will help manufacturers with their exports and financing costs for cars in North America is currently less than half the prevailing rate in 2008.  Furthermore, the average age of a vehicle in the US is a record 9.4 years with nearly half of the 250 million cars and trucks on the road at least ten years old.  There is therefore pent up replacement demand and this should see vehicle sales recover into 2011.
Scrappage is still a key driver for sales in Canada but probably more so is the economic confidence being displayed in the average Canadian home – 50% up from the late-2008’s low.
So, the car sales markets in Europe will struggle during 2010, making export an even greater imperative.  The scrappage schemes did as they were intended but now it’s back to business for the European manufacturers in their efforts to compete in the global market.
All the more reason to understand GM’s lack of willingness to sell its Opel brand and it’s willingness to close Saab!

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