Weekly international investment round up to 25 August 2009
• America’s car trade-in scheme helps jump start their economy
• Similar German and UK incentives give a much needed boost
The brakes were applied to America’s ‘cash for clunkers’ scheme yesterday after the incentive proved to be an amazing success. Officially known as the ‘Car Allowance Rebate System’ or ‘CARS’, this has probably been the most easily visible part of the Obama administration’s multi-billion dollar stimulus package which was implemented early this year in an attempt to give their stalling economy a jump start.
After the initial $1 billion funding for the scheme had been quickly exhausted in its first week the US Senate then approved a further $2 billion in funding with the goal of extending the scheme until ‘Labor Day’ 7 September however, overwhelming demand coupled with administrative backlogs has now led the ‘cash for clunkers’ scheme finishing earlier than expected.
The scheme came into effect on 1 July and offered car owners the opportunity to receive a maximum $4,500 credit against a new car so long as it offered 10 miles to the gallon more than the model they were trading in while small truck owners would need to achieve at least 5 mpg more. Even those car owners who traded in a vehicle against a new one which offered only 4 mpg or more would still receive a $3,500 credit so long as their trade-in vehicle was no older than a 1984 model.
America’s car industry has been one of the hardest hit sectors during the recession but the scheme has come as a godsend for it’s car dealerships resulting in AutoNation Inc., America largest auto retailer, seeing their share price zooming up to over $19 per share representing a climb of over 90% since the beginning of the year while its main rival Group 1’s share price has more than doubled.
Similar schemes elsewhere have also proved successful. Germany, among the first to set up a car scrappage scheme, has experienced huge demand and must thank this in-part for helping it officially pull out of recession while in the UK car sales rose by 2.4 per cent in July when compared with the same period last year, the first rise since the spring of 2008. Data from the UK’s Society of Motor Manufacturers and Traders also states that the ₤2,000 per car incentive trade-in scheme helped boost last months sales to 157,149 units although in order to put this into context total sales from the beginning of this year are still 22 per cent lower when compared to the same period last year.
When news broke of the American scheme coming to a halt Japanese car manufactures immediately felt the impact. Honda, which relies upon the US market for nearly half of its annual sales, dropped 4 per cent while Toyota which has benefited most under the ‘clunkers’ scheme with their Corolla notching up the most purchased vehicle, was driven down 3 per cent.
Some analysts have criticised the scheme as a temporary gimmick which has only served to condense many months of normal sales activity into a shorter period of time while leaving car dealers cash-strapped until the government actually repays them the offered rebate but as a swift confidence building exercise it has been priceless.