Continuing from what we had written last week in the first part Auto Policy: Scrap, Rattle or Shake? - I
, it may be worth noting that in China, the initial 'cash for clunkers' scheme had relatively limited success. So, the government decided to convert that into an (almost) compulsory scrapping of older vehicles.
Any private car, which has covered 600,000km has to be scrapped. Taxis and most buses can be used for a maximum of eight and 10 years, respectively. After that, they are all crushed.
Many economists argue that it is inefficient to destroy cars in an attempt to stimulate the economy, likening it to the 'broken window fallacy': the illusion that destruction and money spent in recovery from destruction, is a net benefit to society.
A broader application of this fallacy is the general tendency to overlook opportunity costs or that which is unseen, either in a financial sense or otherwise.
This is obvious when one considers that in the UK alone, “there are more than 1.2 million historic vehicles, or classic cars, in a total vehicle parc of 38.4 million vehicles,” explains David Whale, chairman of the Federation of British Historic Vehicle Clubs (FBVHC), estimating the “worth of these vehicles at £17.8 billion (Rs162,000 crore)!”
Moreover, the numbers and the values of these historic vehicles, what we call vintage or classic cars, motorcycles and other vehicles, which are more than 30 years of age, are growing every year. The governments of the UK and most European countries recognise these vehicles as national heritage, or treasures.
India too, has a significant number of 'historic vehicles.' It has been estimated that over nine million vehicles in India are over the age of 15 years. It would be safe to guess that at least 10% of them—almost a million – are over 30 years of age, thus 'historic' as per the definition of FIVA (Féderation Internationale des Véhicules Anciens, the international federation for historic vehicles), and so could be gaining in value.
Destroying them would be a long-term loss to the nation. Restricting their use and, at the worst case, exporting them may be much better alternatives to destroying them.
Many cities in Europe have a limit to the age of taxis and other public transport vehicles, as these ones, because of their intense use, are the most polluting. Until a few years ago, taxis, buses and other public transport vehicles in Beijing, even though they constituted 3% of the vehicles, 'contributed' to 38% of vehicular pollution.
In Paris, new taxis are allowed to ply for seven years, at most. Over these seven years of constant use, many will have covered over half a million kilometres. Once they are taken off the road as taxis, they may be owned by some private buyers in Paris or France. Most, though, are exported to Africa.
Mumbai allows taxis of up to 20-years-old to ply in the city. Many of them have redone their engines several times. It would make much greater sense to restrict the age of public transport vehicles plying in the cities and elsewhere than ban all vehicles more than 15-years-old, as many private vehicles cover relatively fewer kilometres.
In fact, the calculation of the 'net societal costs' of a scrappage programme as a difference between value of destroyed assets (of a vehicle that has covered relatively low mileage) versus fuel savings, emissions avoided, and casualties avoided, may be more negative than presumed.
Export Them Instead of Scrapping
Thus, the solution of exporting the older vehicles to other, smaller markets may be the best alternative. Two-thirds of car sales in most African countries are that of second-hand imports (or pre-owned as the sellers prefer calling them), from Europe and Japan.
Even New Zealand imports more than 150,000 pre-owned cars from Japan every year. In all, Japan, exports over a million pre-owned cars every year all over the world, and it accounts for more than a fifth of the country’s vehicular exports worldwide.
Japan did try the 'cash for clunkers' programme during 2009-2010; but, after a $3.7 billion (Rs21,000 crore) hole in the exchequer, decided to push for exports of older vehicles.
How does this work? After three years of use, all cars in Japan need a roadworthiness certificate, issued after an intensive 60-point test on the car, which includes the process of mounting the car on a test ramp and shaking it nice and proper.
The Japanese call this test as 'shaken.' The car 'shaken' tests, as well as much shakin' ‘n’ rollin’, costs anything between ¥54,000 (Rs35,000) and ¥90,000 (Rs60,000), not including all the repairs and tuning that the owner may have needed to have carried out before or after passing the test.
Moreover, this is every two years, from the third year onwards. Reason enough why, after five years of ownership, most car owners are happy to sell their car, for export, after reconditioning, to Africa and elsewhere.
The US and Germany, learning from Japan, have become significant exporters of pre-owned cars too. They export left-hand-drive cars. Japan is the main exporter for right-hand-drive markets. As would be obvious, India (being one of three main right-hand drive manufacturing nations) has considerable opportunity therein.
Thus, a more stringent process, as well as the higher costs of carrying out roadworthiness certification of a vehicle after a certain number of years, may act as a better disincentive to retain older vehicles than that of higher registration fees.
Moreover, by doing so, the owner makes sure that the vehicle is maintained in a good condition, thereby addressing the issues of emission and safety, as well as retaining enough value for the vehicle to be good enough to be exported at the right time.
(Author of several automotive books, founder editor of many leading auto mags, Gautam Sen has also consulted with most of the Indian auto majors. He has also worked with several leading car designers such as Gérard Godfroy, Tom Tjaarda and Marcello Gandini, among others.)