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Japan – New guidelines to differentiate between used cars, scrap vehicles

The Japanese government is set to formulate new guidelines to differentiate between used cars and scrap vehicles, in order to prevent auto dealers from selling off damaged vehicles on Internet auctions to escape recycling fees.

The Ministry of the Environment and the Ministry of the Economy, Trade and Industry plan to introduce new criteria to assess the value of used cars, as an increasing number of car dealers are selling scrap vehicles via online auctions to shift the recycling costs to auto wreckers.

Following the introduction of the End-of-Life Vehicle Recycling Law in 2005, which requires car owners to pay recycling fees for scrap vehicles, car dealers began to put damaged vehicles on auctions, just like ordinary secondhand cars, in an attempt to escape dismantling costs.

As a result, the number of end-of-life vehicles on the market decreased, prompting auto dismantlers to purchase disused cars via Internet auctions to secure work, even though they have to shoulder the recycling costs instead of the original owners. However, as this trend goes against the spirit of the law, the ministries have decided to clarify those vehicles eligible for reselling and those subject to recycling.

Behind the trend is an increase in exports of secondhand cars, as well as the rapid growth of the used-car auction market. According to the Nippon Auto Auction Association, the number of used cars put on auctions increased from 6.81 million units in 2004 to 8.87 million units in 2008. Before the recycling legislation was enacted, auto dealers used to buy unwanted vehicles from their owners and entrusted the dismantling and recycling works to secondhand car dealerships and wreckers; however, along with the introduction of the new law, end-of-life vehicles began to be traded via auctions, leading to the complaint from auto dismantlers.

The new guideline will especially focus on the engine condition and distance traveled of used cars. The ministries will set up a new team under the Central Environment Council and the Industrial Structure Council as early as next month, and aim to compile the guidelines by summer.

However, the move is expected to arouse controversy in the industry, with some people insisting the assessment of the value of automobiles be left up to the market.