Japan to offer cash to scrap old cars, buy new ones

TOKYO, April 9 (Reuters) - Japan 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 automakers 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 on Thursday, calls for a “cash-for-clunkers” programme that would reward drivers with 250,000 yen ($2,500) for scrapping vehicles older than 13 years in favour of those meeting fuel efficiency standards set for the fiscal year starting in April 2010.

It would also offer 100,000 yen on the purchase of each new car that meets stricter mileage as well as emissions standards, including hybrids and compact cars such as Honda Motor Co's 7267.T best-selling Fit model.

Incentives for both categories will be halved for 660cc microcars, which already get preferential tax treatment.

The proposed plan is unlikely to be changed much ahead of a formal government announcement on Friday. [ID:nT325185]

Japan joins a growing number of nations offering such so-called scrappage incentives, which have helped reverse a sales slide in Germany in the past few months. [ID:nL2629997]

Details such as the duration or total value of the incentive programmes are due to be decided later, but Dai-ichi Life Research Institute estimated the scrappage incentives alone could translate into sales of 450,000 to 1.51 million vehicles.

Japan, the world’s third-largest car market, also lowered taxes on April 1 on clean-emission cars in a move that the auto industry lobby estimated would add 310,000 vehicles in sales in the 2009/10 business year. [ID:nT178078]

That means consumers replacing an old car to buy a new Toyota Prius hybrid car could save a total of about $4,000.

Analysts 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’ auto 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 programme ends. (Editing by Hugh Lawson)