The proposed RM5,000 incentive to trade in cars that are 15 years and older for new ones will spur industry growth, Proton Holdings Bhd's (5304) chief said.

" This policy is an important tool in the ecosystem of the automotive industry and can help the industry to not only dispose of old cars but also stimulate growth," Proton managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir said in a statement.

He said Proton has implemented an exchange programme since November 2007, which allows its customers to trade in their old cars for a discount on new purchase such as the Gen.2, Perdana and Satria Neo.

As at last month, nearly 1,700 Proton cars had been purchased under the programme.

Proton Edar Dealers Association (Peda) also lauded the incentive, but stressed that an official valuation of second-hand vehicles was more critical.

A lack of control over second-hand car valuation is currently more critical, Peda acting president Armin Baniaz Pahamin said in a statement.

"An independent body for second-hand car valuation is more critical than the scrapping policy to spur automotive sales as well as protect the public's interest," he said.

Armin said that without such a body, industry sales could be further affected when potential buyers cannot trade in their cars without paying off the loan balance.

"Most cars are now valued by the banks lower than the balance loan amount. In recession and inflation, the public's disposable income is affected and many cannot service their monthly car loan repayments.

"They are further burdened when they cannot even sell their cars (without paying the bank for the balance loan amount) and end up having their cars repossessed and made a bankrupt when the banks auction the cars for less than the balance loan amount," he explained.

Armin said that Malaysians now own an average two cars per household, which may cause sales to stagnate and eventually deteriorate.

He said that although the mechanism may differ, the scrapping policy was already established in most developed countries such as Singapore, Japan and the UK.

"In markets such as the UK, the cost to maintain a 15-year old car is too costly with its road safety worthiness test being done annually before the road tax renewal.

"It is very strict and the public themselves opt to scrap their cars even without any incentive," Armin said.

Scrapping such old cars will help reduce road fatalities as well, he added.

Peda has suggested its own sweetener to the policy: giving the RM5,000 carrot only to locally assembled vehicles.