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Cablegate: Japan May Extend "Cash for Clunkers" Program

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DE RUEHKO #2926/01 3580231
ZNR UUUUU ZZH
P 240231Z DEC 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 8386
INFO RUCNWTO/WORLD TRADE ORGANIZATION COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2408
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RUEHNAG/AMCONSUL NAGOYA PRIORITY 5160
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RUEHKSO/AMCONSUL SAPPORO PRIORITY 8549
RUEHFK/AMCONSUL FUKUOKA PRIORITY 8048
RHMCSUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC PRIORITY
RUEAEPA/HQ EPA WASHDC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 TOKYO 002926

SENSITIVE
SIPDIS

STATE FOR EAP/J
STATE ALSO FOR S/SECC, OES/EGC, AND EEB/IEP
PASS TO USTR FOR AUSTR CUTLER AND M. BEEMAN
PASS TO COMMERCE FOR H. MISISCO, K. ROTH, D. BARZDUKAS
PASS TO EPA FOR S. FULTON
PASS TO DOT FOR L. LAWSON, C. MILTTELHOLTZ

E.O. 12958: N/A
TAGS: EIND ETRD SENV PREL WTRO ENRG JA
SUBJECT: JAPAN MAY EXTEND "CASH FOR CLUNKERS" PROGRAM

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REF: A. TOKYO 890
B. TOKYO 2464

TOKYO 00002926 001.2 OF 002


1. (SBU) Summary: Japan's second FY09 supplementary budget
will likely extend its auto purchase incentive program for
certain fuel-efficient vehicles. No U.S. autos qualify, and
although U.S. automakers advocate modification of the
program, their main concern is preservation of benefits they
currently receive under a separate program as low-volume
importers. It is still unclear when the Cabinet will reach a
final decision, but all indications suggest Japan is likely
to extend the program in its current form. End summary.

Proposed Program Extension
--------------------------

2. (U) The government's second FY09 supplementary budget
draft, currently under consideration in the Cabinet, will
likely include a six-month extension of the auto purchase
incentive program. The "cash for clunkers" element offers a
cash incentive for consumers who scrap older vehicles and
purchase models that meet certain fuel-efficiency
requirements (ref A). The program, originally scheduled to
end March 31, 2010, was enacted in April 2009 as part of an
overall economic stimulus package. However, GOJ cabinet
members have recently suggested publicly that a continuation
is in the works. National Strategy Bureau (NSB) Minister Kan
was quoted recently as lauding this "highly effective
policy," and Minister of Economy, Trade and Industry (METI)
Naoshima publicly stated the program might be extended for
six months. In addition to the "cash for clunkers" scheme,
buyers of fuel-efficient vehicles are also exempted from the
auto acquisition tax and the automobile weight tax through
March 2011. As a result, benefits accrued to buyers of
fuel-efficient vehicles can potentially total 400,000 yen
(approximately $4,500).

3. (SBU) The Cabinet is expected to approve December 4 the
outline of a new fiscal stimulus package, which includes 260
billion yen (approximately $2.8 billion) for eco-friendly
cars. However, it is unclear when the GOJ will make a final
decision on the auto purchase incentive program extension, a
METI official told Emboff December 2.

Effect on U.S. Automakers
-------------------------

4. (SBU) No imported American automobiles, which totaled
approximately 14,000 in 2008, qualify for the "cash for
clunkers" purchase incentives. This is because of the
program's requirement for Japanese fuel efficiency data that
does not apply to the program under which most U.S. vehicles
are currently imported. Many U.S. autos are imported under
the Preferential Handling Program (PHP), which allows for
streamlined importation of low-volume auto imports (2,000 or
fewer per model) without the need for fuel efficiency tests.
To compete with the various purchase incentive programs, the
U.S. auto industry in Japan estimates it cuts sticker prices
approximately $4,500 per vehicle, thus squeezing profits,
American auto executives told Emboffs. U.S. automakers in
Japan intend to submit by December 4 a formal joint statement
to METI, which includes a request that the GOJ eliminate the
fuel-efficiency requirement from the eligibility criteria of
the "cash for clunkers" program. However, METI told us

TOKYO 00002926 002.2 OF 002


December 2 the decision will be made at the Cabinet level;
Embassy sources further speculate the GOJ is unlikely to
modify the program from its current form. Regardless of the
GOJ's decision on the "cash for clunkers" program and other
incentives, U.S. automakers have told us their top priority
is still to ensure their companies will continue to benefit
from the PHP.

Comment
-------

5. (SBU) The GOJ appears poised to extend the popular
purchase incentive program despite repeated discussion of USG
and industry concerns with GOJ officials in Tokyo and in
Washington, including during the October 28 Trade Forum
Talks. Japan's new government has been outspoken in its
support of "eco-friendly" measures, and the auto purchase
incentive program has reportedly buoyed auto sales for
Japanese subcompact and hybrid models. METI officials told
U.S. automakers that "next time" the GOJ introduces this type
of program, it would consider U.S. automakers' concerns, but
it seems unlikely that the GOJ will modify the program;
rather, the decision will be whether or not to extend the
incentives in their current form. It seems equally unlikely
U.S. automakers -- a small presence in Japan -- will be able
to influence this decision.
ROOS

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