Japan, the world's third-largest car market, is set to pass legislation to encourage consumers to buy new cars as part of a $154 billion economic stimulus package, including $2,500 in cash incentives for those replacing cars more than 13 years old.
Hit by a relentless slide in domestic sales, Japanese car makers have been seeking some form of government-backed boost for a market they forecast will shrink to a 32-year low of less than 4.3 million vehicles in the year to March 2010.
The plan, released by the ruling Liberal Democratic Party earlier today, calls for a scrappage program that would reward drivers with 250,000 yen ($2,500) for scrapping vehicles older than 13 years in favour of those meeting the fuel efficiency standards set for the financial year starting in April 2010.
It would also offer 100,000 yen on the purchase of each new car that meets stricter mpg as well as emissions standards, including hybrids and compact cars.
The proposed plan is unlikely to be changed much ahead of a formal government announcement on Friday.
Dai-ichi Life Research Institute estimated the scrappage incentive proposals, as they stand, could translate into sales of 450,000 to 1.51 million vehicles. Analysts also said they expected the latest measures to stimulate demand in the near term since the recession had prompted many Japanese to hold off replacing their cars.
"This should work positively for domestic car sales," Shinko Securities' automotive analyst Tairiku Sakaguchi said.
He added, however, that there remained a risk that sales would fall even deeper if the economy does not improve by the time the incentive program ends.
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