Where is it difficult to implement the global popular car exchange?
In the face of an ongoing economic crisis, the global automotive industry is grappling with a significant consumption challenge. To stimulate demand, many countries have adopted initiatives aimed at accelerating vehicle turnover. Germany and the United Kingdom, for instance, have implemented policies offering financial incentives for scrapping older vehicles—those over 10 years old. China has also introduced its own "new-for-new" policy, with the State Council announcing on May 19 that it would use financial subsidies to encourage the replacement of old cars.
Different approaches are being taken across the globe. Germany was among the first to launch a trade-in subsidy program, which later spread to France, Italy, and now the UK. In the first four months of 2009, UK car sales fell by nearly 30%, prompting the government to offer a $3,000 cash incentive for consumers trading in their old vehicles. The total government funding for this initiative reached around $450 million.
China’s new subsidy policy, however, focuses primarily on commercial vehicles. Xu Caihua, a researcher from Guodu Securities Research Institute, noted that in urban areas, logistics vehicles dominate, while in rural regions, light trucks are more common. He added that similar support measures were already in place earlier in the year.
The decision to target commercial vehicles stems partly from the sluggish performance of passenger car sales. According to data from the China Association of Automobile Manufacturers, passenger car production and sales dropped by 9.22% and 4.96% respectively in the first four months of this year. In contrast, truck production and sales saw growth of 17.11% and 11.99%.
Other nations are also exploring similar strategies. Japan is considering subsidies for hybrid and electric vehicles, while the U.S. Congress is expected to approve a bill that would provide a $4,500 rebate for car replacements.
In terms of funding, the UK’s $3,000 subsidy is split between the government and automakers. However, Chinese automakers lack the financial capacity to contribute significantly. Xu Caihua pointed out that light truck companies typically operate with a profit margin of about 5%, and any subsidies would likely erode their profits.
Implementing such a policy comes with challenges. One key issue is the enforcement of China’s vehicle scrapping system. Many overloaded service vehicles remain unregistered, unlike in other countries where strict scrapping procedures are in place.
The size of the subsidy is another concern. The current limit is set at no more than the purchase tax, which is roughly 5% of the vehicle’s price. While this may not be highly appealing to urban consumers, rural users could find it more meaningful.
Xu further explained that many light trucks, which are only designed to last five years, might need to be replaced if they are used beyond a decade. Some light truck operators have expressed concerns about the policy, noting that micro-passenger vehicles receive more favorable treatment. A dealer remarked, “Why do micro-passengers get direct subsidies while light trucks are still subject to rebates? We hope for equal treatment.â€
In April, the micro-passenger market experienced a surge, with sales jumping 70.66% year-on-year. For example, a Wuling micro-passenger priced at around 48,600 yuan received a 4,860 yuan state subsidy, along with additional savings on taxes and company promotions, greatly boosting consumer interest.
This policy shift highlights the evolving landscape of the automotive industry, as governments seek to stimulate demand through targeted financial incentives.
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