Scrap 'em all

With most attention turned to General Motors and Chrysler respective falls, and the unions, new car dealers fell to obscurity, at least in the mainstream media. Canadian dealers struggle with the credit, or lack of thereof, as the banks are not very keen on financing the shop window of a failing industry. A side but important note: the current situation is not specific to the Detroit manufacturers' dealers. “Despite record-low interest rate reductions from Bank of Canada, commercial banks have not been open for business for months for our dealers. Thais is not acceptable or sustainable,” said Bill Taylor, the chairman of Canadian Automobile Dealers Association (CADA).

Canadian dealers are now pushing Ottawa to introduce national scrappage program. To be more specific, a program that would actually work because the current fleet-renewal incentive worth $300 will not make a difference. There is still a market for old bangers so why would anyone give up one for $300 if they could sell it for $400. Not to speak that one doesn't have to spend $300 towards a new car.

CADA is looking for a $3,000 per scrapped car program, which is comparable to incentives run by several European Union member states. CADA made actually a very good case presenting detailed outlines of EU scrappage plans. These all worked, with German and Slovak programs being particularly successful. CADA hopes that the available credit combined with scrappage incentives will revive automotive retail trade. There are 6.8 million cars older than 10 years in Canada, 2.8 million are older than 15 years so there's plenty of room for renewal.

It remains to be seen what will be the federal government's response. Ottawa has already provided loans (bailout) to the Detroit manufacturers operations in Canada and it may look as it already did its share. However, it's questionable to input money into manufacturing when the second piece in the chain, the dealers, have no resources available to buy what's manufactured, and the third piece, consumers, are thinking twice whether to buy a new car. What dealers are asking for is the environment that will allow that often trumpet and much touted concept of “keep the money flowing in times of crises” actually work.