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Leased cars not eligible for car-scrapping bonus

The car-scrapping bonus, which the Economy Ministry has been granting to persons who scrap a car older than nine years and buy a new one, will not apply to cars bought through leasing.

The car-scrapping bonus, which the Economy Ministry has been granting to persons who scrap a car older than nine years and buy a new one, will not apply to cars bought through leasing.

“We think there should be a direct relation between the person who buys a car and has his old one scrapped; that there should be no intermediary,” said Vojtech Ferencz, the general director of the strategy section of the Economy Ministry, as reported by the TASR newswire.

Banks immediately reacted by adjusting their products for those who would normally buy a car through leasing to make the car-scrapping bonus available to them also. Some of the banks are offering specific-purpose loans, which usually involve lower interest rates than non-specific loans, the Sme daily reported.

This kind of specific-purpose loan only for purchase of a car is being offered by Dexia, OTP bank, Volksbank Slovensko, Unicredit Bank and VUB bank. Other banks, such as Tatra banka, Slovenska sporitelna, CSOB, Instrobanka, Postova banka and mBank are recommending that their clients use a non-specific loan or an ‘American loan’ in which the proceeds can be used for any purpose, Sme wrote.

The aim of the car-scrapping bonus is to update the national car fleet and stimulate new car purchases. Similar schemes are currently being introduced in other European countries.

“The aim is for all member states of the EU to introduce the car-scrapping bonus, [as] only then it will have the desired effect,” said Ľudovít Ujhelyi, a vice president of the Automobile Industry Association to TASR.

The basic car-scrapping bonus paid by the state is €1,000; if the new car seller reduces the sale price by another €500, the state which will increase the bonus to €1,500. The car-scrapping bonus can generate a total discount for buyers of €2,000. The bonus applies only to cars with a regular sale price less than €25,000. The car being scrapped must have been manufactured before December 31, 1999 and been registered in Slovakia no later than December 31, 2008.

To qualify for the bonus a buyer must deliver a document from an authorised car scrapper to the new car seller proving that the old vehicle has been scrapped. The new car seller is then obliged to reduce the purchase price and can later claim the car-scrapping bonus from the Economy Ministry, TASR reported.

The introduction of the car-scrapping bonus should help to boost sales of new cars which have experienced a significant decrease during the first months of 2009. In January and February the number of newly registered cars fell by about 40 percent year-on-year, according to police statistics, the SITA newswire reported.

Measures like the car-scrapping bonus are ‘unsystematic’ and can be called ‘wasting money of the taxpayers’, according to Richard Ďurana, director of INESS, the Institute of Economic and Social Studies.

“The car-scrapping bonus is selective support to a selected industry sector,” Ďurana told The Slovak Spectator. “On top of that, in this way the state motivates people with their own money which they paid in taxes to destroy a functioning piece of property in order to increase new consumption.”

According to Ďurana, the bonus deforms the consumption function, as the state is motivating people to buy a car and then people have fewer resources to invest into their housing, insulation or the purchase of other products. The state is motivating people to spend their savings even though the extent of the crisis is unknown.

“Any natural or legal person is entitled to the bonus, which means we all pay taxes in order to give support to people who don’t need it,” Ďurana said. Apart from that, he says that stimulation of demand to purchase cars in Slovakia doesn’t help car production in the country.

“The quantities of Slovak-made cars that are actually sold in Slovakia are produced in one week and therefore Slovak auto production is dependent mainly on foreign demand,” Ďurana told The Slovak Spectator.

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