TORONTO – As Canada evaluates the effectiveness of its vehicle scrappage program in light of the extraordinary success of a more robust program in the U.S., one company is taking the matter into its own hands.
Hyundai Canada said Wednesday it will offer between $500 and $1,000 in savings, depending on the vehicle, as an incentive for consumers to scrap old cars for new, fuel-efficient Hyundais.
The incentive is the first of its kind to be offered by an individual company in Canada, and the South Korean automaker said it will “top up” incentives offered under the federal government’s existing Retire Your Ride program.
Hyundai Canada president and CEO Steve Kelleher touted the environmental benefits of the program over its ability to generate sales, although larger government-run scrappage programs have been very successful in boosting sales in an industry that has been hit particularly hard by the recession and slumping consumer confidence.
“From our standpoint anyways, it’s not so much an initiative to increase our sales. Our sales are doing really, really well this year,” Kelleher said in an interview.
“We’re looking for a good platform to launch our corporate social responsibility initiatives.”
According to data from DesRosiers Automotive Consultants, Hyundai sold 10,488 vehicles in Canada in July, a 37.8 per cent increase from a year earlier, putting it in sixth place in terms of Canadian market share.
Hyundai Canada is a subsidiary of South Korea’s largest automaker and industrial group. The Asian company is now firmly entrenched in the North American market after stubbing its toe initially years ago when it was forced to close an assembly plant in Bromont, Que., near Montreal in 1994, a victim of a recession that limited the factory’s production to well below designated capacity.
Kelleher stressed that Hyundai won’t make much money off the vehicles sold through the scrappage program, but admitted that it could result “in a big uptick in sales” – as many as 1,000 vehicles a month for the rest of the year, according to the company’s projections.
“We expect that if we’re the only one doing this, we’ll probably get a big uptick in sales, but we’re not going to benefit financially from those sales,” he said. “That’s not the end goal of the program.”
Bill Pochiluk, president of industry adviser AutomotiveCompass, said the $1,000 rebate is “not a token number,” but said Hyundai is simply trying to attract more buyers by linking its incentive program to the environmental movement.
“This was a clever use of words, and tying it to green I think was quite smart, but I don’t see this program as exceptional in any way.”
Pochiluk said he doesn’t dispute that Hyundai wants to do something to help the environment, but said there are financial benefits as well.
“They’re trying to basically help their dealers move some metal to get a little bit of positive momentum,” he said.
“I’m sure this altruism is accurate to a significant extent, but the business issues – it’s very expensive to hold inventory, and you have a dealer body that needs help – are also critical factors to making this thing go.”
Kelleher said Hyundai Canada was inspired to launch the program after it saw the resounding success of a “cash for clunkers” program in the U.S.
The program offers consumers up to US$4,500 to trade in old cars for new fuel-efficient models. It’s been so popular that the $1 billion initially slated for the program was used up within two weeks and the U.S. government quickly earmarked another $2 billion to keep it running.
Similar programs in the U.K., France and Germany have also been credited with bringing consumers back to the showroom floor.
In Canada, car makers and dealers have criticized the existing scrappage program as being too small to stimulate sales in any meaningful way, and have urged the government to develop a more robust incentive.
Under the current program, consumers can receive free transit passes, membership in a car-sharing program, money towards a new bike, $300 in cash or a $500 rebate on the purchase of a vehicle built in 2004 or later.
However, the incentives vary by province. New Brunswick and Prince Edward Island are the only provinces in which you can get the rebate. If you live in Ontario, Manitoba or Saskatchewan, your only option is the $300 in cash.
A government spokeswoman said Environment Minister Jim Prentice is “currently evaluating the effectiveness of this program and considering if Canada should follow other countries in offering consumers a substantial financial incentive to scrap their old vehicles for environmentally friendly transportation options.”
But Pochiluk said it may be too late to introduce a better-funded scrappage program in Canada.
“I think the Canadian economy is coming out of the recession faster than the U.S. is, and it may not need as much cash thrown at the problem as is needed in the U.S.,” he said.
“At this point in time, I think it’s not going to be necessary. I think it’s too late to have an impact comparable to the U.S.”
Critics of scrappage programs say they simply boost vehicle sales in the short term by prompting consumers who were already planning to buy a new vehicle to head to the showroom a few months early.
In the United States, the top 10 selling vehicles under the clunkers program do not contain any models by General Motors or Chrysler, the two companies that were saved from collapse by billions of dollars in aid from the U.S., Canadian and Ontario governments.
However, Pochiluk pointed out that many of them are made in North America – including the Toyota Corolla, made in Cambridge, Ont., and the Honda Civic, built in Alliston, Ont. – and increased sales of any vehicle will give dealers a boost.
Hyundai has committed to its program for the rest of 2009 and Kelleher said it could be extended beyond that if it’s successful.