Money9 Edit | The scrap trap
The theory that scrapping old cars will boost new car purchases may not stand the test of time
Transport Minister Nitin Gadkari announced the details of the Voluntary Vehicle Fleet Modernisation Programme or the Vehicle Scrapping Policy, in Parliament on March 18. The policy was originally announced by Finance Minister Nirmala Sitharaman during her Budget speech on February 1, 2021.
Old vehicle scrappage is a timely need, if not a tad too late already. India is home to 22 out of the thirty most polluted cities in the world. Pollution levels in the October to December cycle every year in many parts of north India are hazardous. There is no doubt that phasing out old vehicles is not just a good idea but an urgent priority too.
It is to be seen, however, how much really do old vehicles contribute to the pollution figures and what dent will it make to the environment by freeing up roads from old private vehicles. Yes, we remember that evert drop makes an ocean.
On the consumer front, while one is forced to junk an unfit private vehicle over 20 years of age, there are incentives that will lure most.
A 4-6% scrap value of the ex-showroom price of the same vehicle is one. Imagine a new car worth Rs 10 lakh will fetch you Rs 50,000 in pure scrap value. Then a road tax rebate of up to 25% as well as a potential registration fee waiver will bring down a customer’s outgo significantly. Now add to that a 5% discount on a new car and it clinches the deal! But only if you want to buy a new car at all.
With the rising emphasis on public transport and the burgeoning (at least pre-Covid) cab-share culture, auto sales may not rise in the future at the same clip seen in the past. The theory that scrapping old cars will boost new car purchases may not stand the test of time.
Moreover, is the government expecting too much from automakers to discount their new offerings by 5%? The auto sector is a competitive one and thrives on price-sensitive consumers. Yes, the command good margins but why should they be asked to forego 5% of their topline to consumer who junked their old hogs? Will they be tempted to increase prices to adjust the mandated discount?
The last thing consumers would want with rising fuel prices is a costlier car with a make-believe discount.