German ‘cash for clunkers’ out of gas just before vote

September 2, 2009
 
Germany‘s “cash-for-clunkers” scheme expired on Wednesday with a last-minute surge in demand a full three weeks before the Sept. 27 election and much faster than anyone thought possible.
 
The government’s 5-billion euro incentive programme has led to the purchase of 2 million new cars in the last eight months, according to the website of the Federal Office of Economics and Export Control  that has been keeping a live update of how much money was still available. New car registrations are up about 30 percent this year — in the middle of the country’s worst post-war recession.
 
By any measure the “Abrwackpraemie” (car junking bonus), as the Germans informally referred to the government’s more official “Unweltpraemie” (environment bonus), that offered new car buyers 2,500 euros for scrapping their older vehicles has been a great success story — a textbook example of pump priming that would make have made Franklin D. Roosevelt proud.    

 

It was among the 81-billion euro basket of stimulus measures the government put together to soften the impact of the recession and was later copied in many other countries, including the United States.It started out as a 1.5-billion euro scheme but that had to be quickly topped up in the spring as a frenzy swept the country.

It gave the economy an important glimmer of hope as gross domestic product contracted by a post-war record 3.5 percent in the first quarter. The government’s heavy-handed intervention did, however, disrupt the free markets — hitting the market for used cars and causing problems for retailers as we pointed out in this story in April.  

My colleague Paul Carrel pointed out in an analysis today that the “cash-for-clunkers” scheme helped private consumption in Europe’s biggest economy grow by 0.1 percent in the first half and without the scheme it would have declined 1.0 pecent compared to the first half of 2008.    

 

The Social Democrats led by Vice Chancellor Frank-Walter Steinmeier — pictured here on the left inspecting a new car as it rolls along on the assembly line — have claimed credit for the Abwrackpraemie, saying it was their idea that helped the car industry in Germany and elsewhere with the generous subsidies for new cars for those to junk their older vehicles. That may be the case but voters don’t seem to care: the SPD still trails Chancellor Angela Merkel’s conservatives by about 12 points in opinion polls. 

The pressing question now is: What will happen to the car market now? Will demand for cars collapse? Did the “cash-for-clunkers” scheme simply encourage would-be car buyers to pull forward their purchases? Will the market be sucked dry? Or did it help stimulate genuinely new demand from people who otherwise would have held onto their ageing vehicles? Will it prove to be a “Strohfeuer“, a flash in the pan?

 

 

 

PHOTOS: Top: Junk cars piled up at a scrap yard in Offenbach near Frankfurt,  REUTERS/Kai Pfaffenbach (GERMANY)

Lower: Steinmeier (2ndL) talks to an employee about the A3 production line during a visit to the German car manufacturer Audi in Ingolstadt. REUTERS/Michaela Rehle

 

 

 

One comment

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As a Used Car Department Manager, I think the Cash for Clunkers (CARS) program pulled in customers who would not have purchased a new car this year. The real problem is that the people who did not qualify are seemingly waiting for their chance at a great deal. Once a more normal buying pattern returns, the industry will be more stable, but probably not a hot bed of activity for quite some time.

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