'Cash for clunkers' to beat weak sales

Updated: 2011-06-09 07:06
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SHANGHAI - China plans to pay up to nearly $2,800 for old vehicles headed to the scrap heap, in a move aimed at perking up slumping sales in the world's largest auto market.

Vehicle owners can get subsidies of between 11,000 yuan-18,000 yuan ($1,700-$2,800) for old farm vehicles, city buses and heavy trucks, said a notice issued Wednesday by the finance and commerce ministries.

The plan coincides with reports that China's vehicle sales fell by 14 percent in May from the month before after years of mostly double-digit growth.

China's auto market surged to become the world's largest in 2009, helped by a program to exchange old vehicles, including cars and light trucks, for subsidies to buy new ones. The incentive scheme was introduced to help fight a downturn during the global financial crisis.

Similar to the Cash for Clunkers program in the US, it encouraged sales of more fuel-efficient models, spurring sales of small passenger vans used primarily by farm and business owners. That program ended last year.

The new program covers a smaller range of vehicles but includes buses and trucks, which account for a large share of China's overall vehicle sales.

The "early retirement" for vehicles program, the ministries' notice said, is meant to "facilitate travel of urban and rural residents and to promote improved quality of transport, in line with public interests."

While the plan calls for higher subsidies than the earlier program, analysts questioned whether it would do much to help the market, given the lucrative prices paid for second hand vehicles.

"Car owners can make even more money in the second hand market. So unless they can't sell the vehicles there, I doubt it will do much to boost sales," said Rao Da, secretary-general of the China Passenger Car Association.

Official figures for sales in May are due this week. Sales fell in April for the first time in two years as car buyers held back in response to traffic curbs, rising fuel prices and a lack of incentives.