TORONTO - The organizations representing the Detroit Three and car dealers in Canada say they're disappointed Ottawa has decided not to beef up its vehicle scrappage program.
Both the Canadian Vehicle Manufacturers' Association and the Canadian Automobile Dealers Association had asked the federal government for a $350-million program that would provide consumers with $3,500 to trade in old vehicles for new, more fuel-efficient models with the goal of getting 100,000 clunkers off the road.
But Environment Minister Jim Prentice said Thursday the government has no plans to beef up its program, which offers $300 or other small incentives for consumers to scrap their old cars.
"We've always said that the existing program could have been a lot more robust in terms of attracting new vehicle sales versus providing $300 for a bus pass or a bicycle," said Mark Nantais, president of the manufacturers' association, which represents General Motors, Chrysler and Ford in Canada, as well as truck maker Navistar.
"The economy is still quite fragile, and with the financial crisis and the credit crisis still basically upon us, we could have made some significant improvements if we had a more robust program in place."
"We were certainly disappointed when we found out about this," agreed Michael Hatch, chief economist at the car dealers' association.
Critics of scrappage programs, which have boosted sales in the United States and some European countries, have argued that they simply push sales forward and the slump will resume as soon as the program ends.
It remains to be seen whether this will be the case in the United States, where August vehicle sales increased by one per cent year over year, compared to months of steep declines experienced previously.
In Canada, total August vehicles sales fell 7.9 per cent compared with a year earlier.
Hatch acknowledged that the program would have undoubtedly pushed some consumers to buy a new vehicle a few months sooner than they otherwise would have, but said this would have provided a much-needed boost to the struggling economy.
"Advancing sales in itself is not necessarily a bad thing," he said.
"Technically we may be out of the recession right now, but we're still in a very difficult economic environment, and getting people to spend money now as opposed to a year from now is in itself a positive thing for the economy."
He likened it to the government's tax credit on home renovations, which allows consumers to save up to $1,350 on improvements done before Feb. 1.
"It's intended to get people to pull out their wallets right now as opposed to a year from now, because that's how you increase consumer confidence and that's how you help end the recession sooner," Hatch said.
However, auto industry analyst Dennis DesRosiers said the automakers "shot themselves in the foot" when some began offering their own scrappage incentives.
"There were a lot of reservations within government, but there still was a strong contingent promoting funding for it, particularly out of Prentice's office, and then Hyundai, Chrysler and Ford launched their own, so the government came back and said, 'Well, if they want to do it, why should we?"' DesRosiers said.
The decision not to enhance the current system in Canada comes less than two weeks after the so-called "Cash for Clunkers" program was wound down in the United States after the program ran out of money.
The resounding success of the U.S. program, which offered consumers up to US$4,500 to trade in old vehicles for new, more fuel-efficient models, forced the government to commit $2 billion above the $1 billion it had initially earmarked.
Tony Faria, co-director of the automotive research centre at the University of Windsor, pointed out that 80 per cent of vehicles manufactured in Canada are shipped to the U.S., so there is little doubt Canadian manufacturers benefited greatly from the American program.
But that doesn't negate the need for a similar program north of the border, he said.
"I think some sort of cash for clunkers program here would have certainly helped the dealer network across Canada which is a major business sector and a major employer," Faria said.
In addition, the spinoff effects of such a program would have been huge.
"A number of the auto companies (in the U.S.) have announced they're going to bump up their assembly in the last part of the year to replenish inventories that have run down, and of course as they bump up their assembly that means they're buying more parts, so it's going to stimulate the parts makers as well," he said.
Faria estimated a Canadian scrappage program similar to that in the U.S. could have removed 50,000 to 80,000 vehicles from the road over the course of one month, rather than the 100,000 vehicles Environment Canada is predicting will have been scrapped under Retire Your Ride by the end of March -- more than a year after it was introduced.
Not everyone in the Canadian auto industry was disappointed by the government's decision.
The Automotive Industries Association of Canada, which represents auto-repair shops, described Prentice's announcement as "great news for the aftermarket."
"AIA has lobbied vehemently against such programs because they are ineffective at improving the environment and they harm the maintenance and repair business by removing vehicles that are a key niche for the aftermarket," the organization stated.
