PARIS -- Bad news keeps pouring in about the European auto industry, but France's new experiment with scrapping incentives may offer a roadmap for turning the tide in 2009.
Renault Chief Operating Officer Patrick Pelata said earlier this week that the 1,000 euro scrapping incentive launched last December has boosted orders at French dealerships by 40 percent.
Executives at Peugeot and Citroen are crediting the scrapping incentives for a minimum 30 percent sales increase.
Experts say the spike in orders will show up in new car registrations starting in January, and could continue well into 2009.
France's National Council of Automotive Professionals (CNPA) has suggested that scrapping incentives could be a factor in one in three new car purchases this year.
The government is offering the 1,000 euro subsidy to buyers who scrap a 10 year-old car and buy a new one with CO2 emissions lower than 160 g/km.
Buying a car with CO2 emissions below 120 g/km adds an additional 700 euros of government subsidy.
Carmakers are sweetening the deal, offering similar subsidies to those scrapping younger cars and adding in sizeable rebates.
In some cases, purchase price discounts of 3-4,000 euros are approaching 40 percent off sticker price.
Consumer confidence may be low and financing is still hard to come by, but many potential buyers have essentially said that deals like this are too hard to pass up.
Proponents of the scrapping plan say it stokes demand and replaces old, polluting models with newer, cleaner ones.
Critics counter that scrapping plans may offer a quick sales boost, but experience shows that sales drop when the incentives run out.
Analysts add that the French scrapping plan will accelerate segment shift to smaller cars, which offer lower margins for carmakers and dealers alike.
Renault's Pelata knows these arguments all too well, but he remains a fan of the government measure, which he expects will boost the French market by 5-10 percent during 2009. For Renault, thats an extra 100,000 to 200,000 cars.
Faced with projections of a 20-25 percent drop in the wider European market, Pelata says Renault is willing to take help wherever he can get it.
It may be time for the rest of Europe to take another look at the French plan.
You may e-mail Lawrence J. Speer at [email protected]