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How to Assist Automobile Factories

In the last few years, the production of automobiles and spare parts became the most important part of the Slovak economy. Therefore, due to the current crisis, the Ministry of Economy decided to assist, first of all, the automobile industry.

The Economic Crisis Council decided to assist the automobile industry in the form of the subsidy of new motor vehicle purchases, upon the disposal of one’s old vehicle at the same time (so-called trade-in), and consequently it was approved by the government as well. The aid for this branch was not accidental. The automobile industry plays, in the Slovak economy as well throughout the entire EU, a crucial role from the aspect of GDP generation, employment, as well as secondary employment.

The element of solidarity played an important role in the decision-making process. In the last period, Slovakia became a key player in the field of motor vehicle production from the European, but also worldwide, point of view. Therefore, it is not supposable that there can be benefit from motor vehicle production during the growth phase, or during this crisis to pretend that this problem has nothing to do with us at all.

Moreover, in the EU, more countries have acceded to this step and today it is unambiguously clear that a significant production recovery is taking place in automobile plants, and not only with the main producers, but primarily in the case of medium and small sized sub-suppliers that are seen in a significant number also in Slovakia.

We cannot ignore the fact that the introduction of scrapping significantly eliminates the number of incapable motor vehicles, without the elements of active and passive protection. Positive impacts will be surely registered in the area of ecology.

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We can observe that the present experience from abroad is positive. This is also justified by the fact that further EU countries, and the USA, will consider supporting the automobile industry in this form. Balances, calculations and analyses will be certainly processed, at the level of individual countries, as well as at the European Commission level.

At the moment, nine countries use the scrapping system in the EU, including the Slovak Republic. The United Kingdom, Italy, Luxembourg, Cyprus and Sweden are also considering their introduction of scrapping.

As it results from the government materials, as at the end of May 2009, new motor vehicles were invoiced in Slovakia through scrapping in the number of more than 10,000 pieces and in the value of EUR 92 million, which means VAT collection in the amount of EUR 17 million. A subsidy (reserved one) is used for these vehicles in the total amount of EUR 15 million. The difference between the VAT collection and the provided subsidy amounts to EUR 1.8 million.

At the anticipated maintenance of the development of the difference between the paid out subsidy and the sum of the collected VAT upon the sale of 22,100 vehicles, we can accept a contribution to the state budget in the amount of EUR 3.3 million, and the expected collection of administrative fees shall reach the sum of EUR 1.5 million. The total contribution to the state budget may even exceed EUR 4.8 million. If the scrapping “action” did not take place, we are sure that the real income from this value (EUR 4.8 million) would be maximally 30% (i.e. 70% is the net income due to the introduction of “scrapping” – i.e. EUR 3.3 million).

Only vehicles older than ten years can apply for the scrapping scheme. We took into account the number of more than 800,000 vehicles older than 10 years, and out of that 200,000 older than 20 years. When setting the limit, we used the experience in such actions from other countries, which introduced scrapping also in the past.

Author: The Ministry of Economy of the Slovak Republic
Photo: iStockPhotor