Mexico's Cash for Clunkers Program Extended

MEXICO CITY — Mexico's version of Cash for Clunkers has not been a rousing success in the months since the program was launched in July. The aim is the same as in the U.S.: to get old vehicles off the road and help the ailing automotive sector. Nevertheless, in response to strong lobbying by auto dealers, the government is planning to extend the program.

Originally the plan had envisaged the destruction of 16,000 vehicles, but by the end of November, the number of clunkers taken off the road was closer to 5,000. The program was to end on November 30, but the government has now extended it.

Why the lukewarm response here? Certainly one factor is the inadequacy of the $40 million budget dedicated to Cash for Clunkers, when compared with the $2.88 billion spent in the U.S., but it's also relevant that credit doesn't flow as easily in Mexico as in the U.S. to acquire a new vehicle. Also, the $1,100 credit toward the price of a new vehicle in Mexico is far less attractive than the generous amounts of up to $4,500 given to U.S. consumers. The government is considering increasing the credit to $2,300, but nothing has been decided yet.

Another factor that seems to limit the program's reach is that it excludes cars imported illegally, mainly from the U.S. It is estimated that this category could number as many as 4 million vehicles on Mexico's streets. Despite a suggestion to revise the Cash for Clunkers program to let consumers get rid of these illegal cars and replace them by buying legal cars, no decision has been made.

In Mexico, almost half of the new-vehicle applications in the first phase of the program were for GM vehicles. The U.S. company received almost $5 million from the government. Renault-Nissan is in 2nd place with over $4 million, and Volkswagen was 3rd with close to $4 million.

Inside Line says: A more effective program to boost new-vehicle sales in Mexico would be welcomed by automakers and their suppliers. — Loriana Marietta, Correspondent