This is an exclusive preview of the 2017 edition of Mexico Automotive Review. If you want to get other relevant insights regarding the Mexican automotive industry, get your copy of Mexico Automotive Review 2017 after September 25th.

Article based on an interview with Miguel Elizalde, Executive President of ANPACT.

Q: How open is the government to updating the scrappage scheme?

A: The government has been open to revisiting the scrappage scheme’s guidelines and there have been several adjustments to the program. The remuneration a person or a company can receive for their vehicle was increased, but it cannot surpass 15 percent of the cost of the new vehicle. The downside is that due to the volatility in the dollar-peso exchange rate, the increase in dollars has not been that much. With the January dollar-peso exchange rate, the limit value of MX$336,000 is close to US$18,970, which was indexed to the National Producer Price Index (NPPI). We lobbied for the government to index the incentive to the dollar-peso exchange rate but were unsuccessful. Nevertheless, the NPPI is still above the inflation rate. The scrappage scheme is evolving despite obstacles that hinder its appeal, such as owner-operators.

In 2015, 7,250 vehicles were destroyed through the scrappage scheme. But budget restrictions led the government to establish a limit of 6,000 units per year. Of that total, 3,000 vehicles can be scrapped by transportation companies, while the remaining incentives are destined to owner-operators. In 2016, applications reserved for companies were allocated by September and the program did not reset until January 2017. This means that by 2017, four months of applications had accumulated. In May, the authorities removed the 3,000-vehicle limit on companies owning more than five vehicles, so all 6,000 applications could be used by larger fleets. If the 6,000 limit is reached prior to January 2018, owner-operators could still use the scrappage program up to 3,000 more units. However, it is not enough to scrap 6,000 units per year, especially considering that at that pace it would take us 30 years to replace the 180,000 vehicles that are 21 years or older and should not be on the roads now.

We have also asked the government to increase the total number of applications available in the program. Austerity policies have led the Treasury to limit the number of units that can be destroyed but to reduce the average age of the fleet we should be scrapping up to 20,000 thousand units yearly for the next 10 years.

Q: What are the main issues that need to be addressed to improve the scheme’s performance?

A: The program needs to become more attractive for owner-operators. Otherwise, applications will continue to be wasted. The 3,000-unit limit was established by the Treasury to promote vehicle renewal among owneroperators and small businesses but the US$18,970 remuneration might not be enough for these users and the government needs to take into consideration that this demographic might not be part of the banking population.

To address this issue, we proposed a chain program that allows two companies to participate in the scrappage scheme per application. The original initiative permitted each company to present an old vehicle and receive remuneration for the purchase of a new unit. The chain program involved two participants, a bigger player looking to buy a new vehicle to renovate a used but still functional vehicle, and an owner-operator wanting to scrap one of its old vehicles in exchange for the used unit. Unfortunately, this is more complicated and has not yet come into effect.

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