The European Commission is considering scrappage policies that encourage motorists to dispose of older, more polluting vehicles, in favour of newer vehicles, according to RMIF director Sue Robinson.

“Scrappage policies have been successfully adopted by a number of European countries and we believe that adopting the policy could help move the economy in the right direction,” she said.

Mark Cowling, director of Motoring Economics (www.motoringeconomics.com) explains further:

“There are two main schemes announced so far.

“In January, the German government said it would provide 2,500 euros for scrapping a car older than nine years and then buying a new vehicle.

“Whilst late last year, the French government announced that it would provide a €1,000 bonus for people scrapping an old car or van and buying a new fuel-efficient replacement in 2009.

“The background to this is the decline in European new car sales which posted a 15-year low last year.

“In 2008 new car demand in contracted by 8.4% to reach 14.7m units.

“The major economies affected included Spain (down 28.1% for the full year,) Italy (-13.4%) and the UK where new car registrations fell 11.3%.

Germany (-1.8%) and France (-0.7%) held well for the full year.

“However sales had begun to fall off dramatically in the last few months of 2008.

“Hence action, including the scrappage incentive, was deemed to be necessary and appropriate in these two countries.

“Meanwhile, four countries actually posted growth: Finland (+11.2%), Portugal (+5.7%), Belgium (+2.1%) and Switzerland (+1.0%).

“While fiscal measures helped sustain growth in Finland and Portugal, the Belgian and Swiss sales levels seem to have better resisted the financial crisis.

“The German/French rationale for the incentive schemes is twofold.

“First, it is part of a package of measures to stimulate growth and second as a direct support to their countries’ motor industry.

“There seems to be no specific European coordination at this time, individual countries have acted with specific proposals they believe will be effective for their country.

“However, as the scope for further fiscal packages and falling interest rates begins to decline, more targeted assistance for industry is likely to be the order of the day.

“That’s likely to lead to more countries following the lead of Germany and France in supporting car sales.

“Also, this is not confined to Europe.

"China for example, has just introduced a stimulus package for the auto sector - including a purchase tax cut and a scrappage incentive.

“Whilst in the US, Congressional lawmakers are debating a proposed a 'cash for clunkers' vehicle scrappage incentive to help revive new vehicle sales and clean up the US' existing fleet.