By on February 14, 2009

Stefanie Wolter’s wrecking yard is one of the largest in the northern part of Hesse, Germany. On an average day, they used to receive one or two cars to be euthanized. Now, suddenly, it’s ten. Clunkers are lining up, and the yard can’t kill them as fast as they come in. It’s a common sight in Germany. Wrecking yards are getting crushed under the load of cars to be crushed, Automobilwoche [sub] reports.

The attack of the aging automobiles is caused by the Abwrackprämie (cash for clunkers program) paid for by the German government. Since January 14th, 2009, owners of cars nine years or older can collect €2.5K if they put the pile of rust out of its misery, and buy a new one.

In the beginning, the program was ridiculed. It’s not going to work, said many, owners of clunkers won’t buy new. The Green Party said it’s “a joke.” Quickly, the mood changed.

Polk Germany prognosticated that the program would result in seven percent more sales than in 2008—that’s 200K units. A few days later, a new study said 1.2m people would buy a new car because of the Abwrackprämie. Too good to be true, given that barely 3m new cars were sold in 2008, with gruesome losses in Q4 08 and an awful January.

Then, dealers reported unusual sightings: Buyers in showrooms.

Suddenly, rumors and news articles spread that the €1.5b, enough for 600K cars, wouldn’t last long. Which caused an even bigger run on the showrooms.

The naysayers complained that only cheap imports would profit from the bounty on dead clunkers. On short notice, the market proved them wrong.

Ford reported four times higher sales for its Fiesta, Ka, and Fusion models.

Volkswagen uttered a long forgotten word: “Lieferzeiten”— waiting times for new cars. Buyers of small cars like Fox and Polo, but also of the lower middle class of VeeDub’s portfolio have to wait up to four weeks until they get their new ride.

Even GM’s Opel, pronounced to be near dead, suddenly jumped off the gurney, shouted “I can walk!” and reported 70 percent higher sales of the Corsa and 30 percent higher sales of the Astra. Assembly lines in Eisenach, planned to be shut down in March, will be cranking out cars.

Cars like Renault’s Dacia are flying out of the door and are in short supply.

And the program is just a few weeks old.

The German government apparently pulled off a rare feat: A program that works. €2.5K has enough oomph to make people sit up and think: “Maybe I buy a new car.”  Some folks at wrecking yards are even crushed by the thought that they have to kill cars which still have a good life in them. Off they go. Poor people suddenly feel rich: They bought a 12 year old clunker four years ago for €1.5K, now they see its value increase by a thousand Euro.

And then, there is the most unusual sight: Smiles on the faces of car dealers.

Next week, Detroit will come begging again. Send them home empty handed. Give a $5000 check to each American who sacrifices his old clunker for a new one. At 790 cars per 1000 people, there should be not shortage of candidates.

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38 Comments on “German Car Sales Are Having A Wrecking Ball...”

  • avatar
    Steven Lang

    Alfa Romeo 164… good riddance!

  • avatar

    Unfortunately, as with any government program, the law of unintended consequences will someday reer it’s ugly head in the form of depressed future sales. I would imagine there will be a substantial drop in sales the instant this subsidy ends… if it ends. The bureaucrats create one bubble to stop another, a viscous cycle.

  • avatar

    Despite (or because) being German, I’m not a friend of the German government. But I must say they lucked into something that works. Maybe that is the unintended consequence. It creates sales. And it removes cars from the used car inventory. This should lift used car and hence residual prices. It’s a cheap program, €1.5b . Much better used than dumping the money into black holes.

  • avatar

    jfsvo – you may be correct, to some extent, but seriously, what is wrong with that? Have you looked at the US annual sales rate? Going from 16-17 mil to 10 mil is a death sentence. If someone said, look, we’ll let that 10 turn into a 14, but then the future 16s will be 15s for three or four years, do you think any would turn that down? Hell no. Given the general world economic downturn, any program that can offset the massive crunch we’re going through, even if it means slower sales and growth down the road is probably worth doing. Im not sure we can afford to see how deep this trough can go.

  • avatar

    gdd9000 – If only it were that easy. Why doesn’t the Fed just lock in at 3% annual GDP growth so as to avoid all these pesky recessions and bubbles? Every time the government tries to control a market it fails. See rent controls or the USSR for an example.

  • avatar

    So far, the U.S. government has sunk $13.4b in to the auto industry , and what has it received? Less jobs, less sales, less of everything.

    If they would have used the money and had given $5000 to everyone to retired the POS, and buy a new one, it could have resulted in 2.7m units.

    In Germany, the program pretty much pays for itself. Remember, VAT is 19%. So for a 10K car, 1.9K for the government. Net cost 600EUR.

    Think about it.

  • avatar

    So far, the U.S. government has sunk $13.4b in to the auto industry , and what has it received? Less jobs, less sales, less of everything.

    Exactly. The government is not going to fix anything.

    Delete away.

  • avatar

    in a saturated market as the US only removing old cars will sell new ones. In the US for every license holder there are 1.1 cars. So no real need to buy new cars. Many of the cars are jsut luxury, the guy who has the Mustang still has a normal car etc. If he feesl poorer or unmeployed, he gets rid of the Mustang, or doesn’t buy a new one.

    the big 2.5 now have to pay the price for flooding the market in recent years. People only buy so many cars…. my wife and I have 2 cars. If we bought a new one, we would sell one too and that would prevent someone else to buy a new one (since they get our used one).

    for the economy and the environment it would be good to pay the Abwrackprämie to recycle (I mean in a good way for the environment)old 15 mpg trucks, SUVs and to have them buy small cars. the problem for the big 2.5 is, no one who buys small cars would consider one of their cars.
    So if our congress would do soemthing similar, they would allow that incentive for their SUVs and trucks too… which would be bad for the environment, dependence on oil etc.

    Which brings us back to the root of the problem, the big 2.5 don’t have cars anyone wants.

  • avatar

    Ronald Reagan
    “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

    “The problem is not that people are taxed too little, the problem is that government spends too much.”

  • avatar

    kaleun – So the “big 2.5” are responsible for both “flooding the market” and having cars that nobody wants?

  • avatar

    Americans are not going to trade their pickups in for the little tiny European cars. Well at least while they have the freedom to choose.

  • avatar

    I don’t like government spending, period, but the German program is certainly a whole lot better than the sales tax subsidy the Obama administration came up with. Talk about favoring the rich. Ironic, isn’t it? So now someone who buys a gas-guzzling $100K MB will get many times the benefit of someone who buys a Honda Insight. Brilliant.

  • avatar

    “…something that works. Maybe that is the unintended consequence. It creates sales. And it removes cars from the used car inventory. This should lift used car and hence residual prices.”

    why would you want to lift prices?
    that’s like saying “you know, i sure wish my milk and eggs cost more.”

    in one breath politicians are whining how it’s unfair that poor people can’t afford to buy their own homes. in the next breath they express concern for falling house prices. what better way for something to become affordable than to let it get cheaper?

  • avatar

    hwyhobo – I believe the sales tax deduction is only valid on vehicles up to $49k… and of course isn’t available to the “rich” who make in excess of $125k. Congress choose class warfare over a program that might actually work. Who better to stimulate the auto industry than the individuals who can actually afford a car?

  • avatar

    jfsvo, you may be right on the details. That still does not completely invalidate my point. If you have to have the blasted subsidy, then make it per car, regardless of how much one spends on the car. That would favor smaller cars. Isn’t “environmental consciousness” a part of the new administration’s philosophy? (detect sarcasm here).

    Oh great, that means I can’t get the damned subsidy now. Oh well, at least I am rich. In my area that type of riches doesn’t even qualify for an extra smile at Starbucks. :-w

  • avatar

    @ jfsvo: they mainly started the big discounts and fleet sales. they also mainly gave car loans to sub-prime costumers to desperately sell cars. (and destroy their residuals, if they had any to begin with)

    Who else would be responsible for them having cars no one wants but them? It’s not like the Japanese companies forced them to build crappy cars, it’s not like the government forced them to do that either.

    and the sales numbers make it apparent that they have cars no one wants. At least people still want them less than they want Japanese cars. If it wasn’t for their crappy cars, we wouldn’t have to pay for their bailout, would we?

  • avatar

    Well, I didn’t know about the sales tax stimulus about I read it here. Not a bad idea idea. I’ve noticed used car prices creeping up for the past year. Probably good for leasing companies, not sure about the rest of us. The german scrapping program seems like a waste of good cars — a 10 year car right now (built in 1998) is probably just over 120K miles and is really quite usable. Once a car get to 200K I agree it should be scrapped but I hate to see cars with 120K miles being destroyed.

  • avatar

    kaleun – I just think you’re being a little to broad. The “big 2.5” has some products that nobody wants… and others that people do. The entire industry is in the tank right now, not just the domestics. Toyota, Honda and Nissan all have big discounts in this tough market. Furthermore, while Chrysler doesn’t have much to offer these days Ford is developing a pretty competent line of desirable and reliable cars. Also, Nissan is now at the table applying for DOE loans so is essentially in the same boat as Ford. It’s not as simple as American=bad, Japanese=good.

  • avatar

    US should have ‘cash for gaz guzzler’ program instead. Trade in an SUV, get a subsidy when purchasing new efficient car.

    Oh, no, I take it back – Detroit won’t benefit from it!

  • avatar
    Robert Schwartz

    Won’t help in the US. The car buyers will still be upside down on their loans and unable to dig out quickly.

  • avatar
    Martin B

    I seem to recall the last big depression was also solved by crunching a lot of vehicles — only they were army trucks and tanks then.

    This is a much better way of doing things.

  • avatar

    Every night we watch Tageschau (German TV News) online – this story has not NOT been shown every day for the last three weeks.

    ps. have you seen this?

    Porsche test driver dies in accident on the unlimited section of the Autobahn south of Frankfurt. It was testing a 911 Cabriolet and the Porsche Panorama following, saw the whole thing but did not crash (or the way the put “avoiding crashing”).

  • avatar

    Getting people into much safer cars and trucks has to be good thing, regardless of which automaker’s name is on the trunk lid. This is one government program that honestly benefits people.

  • avatar

    hwyhobo :
    February 14th, 2009 at 12:48 pm

    I don’t like government spending, period, but the German program is certainly a whole lot better than the sales tax subsidy the Obama administration came up with.

    Did the Obama administration really come up with that, or was it added to the stimulus bill by a single congressman, and since the overall package was going to pass anyways, it became law? Was it in the final bill anyways?

  • avatar

    It’s not as simple as American=bad, Japanese=good.
    No it’s not but if you build unreliable cars with unimaginative styling and then screw the customer on the warranty you will be rewarded with declining market share. Detroit except for a few models has been churning out cars and trucks with little eye appeal. In addition to the crap styling they add knobs that fall off, head gaskets that leak, antifreeze that rots, etc. and then to top it off they force the customers into class action suits to get their warranties honoured. Judging by the fact that every week people tell me stories of how the dealers/company screwed them over on their warranty Detroit seems incapable of learning from their mistakes. The Japanese are at least trying to make their customers happy not piss them off.

  • avatar

    they better not squish any mkII Jetta’s without first pulling the bumpers and lights! :)

  • avatar

    real world…
    Even with a $5000 check I wouldn’t trade a running paid for car for a note right now.
    Maybe the German economy is stronger or they are loaning money to people with questionable credit.

  • avatar

    I agree that there are too many cars. My family has 5 cars and only 4 licensed drivers. If we could get $3000 we would trade a car in right now. As long as there are families like mine the market will suffer for a long time.

  • avatar

    Toss me 3000 for my 15 year old escort and I’ll push the button on the compactor myself.

  • avatar

    Geotpf wrote:
    Did the Obama administration really come up with that, or was it added to the stimulus bill by a single congressman

    Like it or not, Obama will get saddled with ownership of a lot of those things, whether he personally originated them or not, just like GW did for a lot of things that happened during his administration.

  • avatar

    Originally, I wasn’t able to discern the make and model of the car being crushed – but then, it was turned around.

    Seeing a car as beautiful as an Alfa Romeo getting crushed and treated like scrap really stung.

    As I watched in horror, all that I could think about was that amazing engine never to be heard again, the finely tuned suspension that would never happily communicate with a driver, and how whoever threw this car away was not worthy of owning it.

    When it was all done, I was left feeling sad and disheartened. Everything has a story, but unfortunately – this car’s story is over. :(

  • avatar

    I guess that the car being crunched is considered a relatively ‘pedestrian’ vehicle in the EU; nary a tear was shed.

    I wonder if the parts and repair business lobbies were P.O.’d by this law – their profits are likely to suffer for a few years (another unintended consequence!)

  • avatar

    I wonder if the parts and repair business lobbies were P.O.’d by this law – their profits are likely to suffer for a few years (another unintended consequence!) Yes, they were and lobbied that the money should be spent to fix up clunkers. The calls fell of deaf ears. There is no significant impact to be expected. Germany has 50m cars on the road, average age 8.5 years, so about 25m qualify. There is money for 600K. Even assuming that 600K cars will be taken off the roads, there are 24.4m cars older than 8 years left to repair.

    Drop in the bucket.

  • avatar
    John Horner

    I doubt mechanics will shed a tear for the basket case cars which get crunched. Last week I was in for a smog check, and the shop owner was trying to talk the owners of a 1983 Chevy pickup which was failing smog into just taking the state’s $1000 clunker scrap money and doing away with the thing. No dice, they wanted it fixed. He groaned at the prospect of patching up that carbureted old beast enough to get it passing. The easy money is in things like routine timing belt changes and brake jobs on relatively new vehicles.

    Keeping derelicts going is not fun, and the vehicle owners are typically only willing to pay for the bare minimum level of work.

  • avatar

    I present here a post fom Steve McDonald on Jan 2nd of this year on the subject. You can find the full text over at ABG where he supplies other reasons which I edited out here for brevity and too avoid any possible copyright infringement.

    “As the government affairs representative of an industry (SEMA) that caters to vehicle restoration enthusiasts, I am extremely familiar with national and state efforts to address older car emissions concerns. The cash for clunkers concept is hardly a novel approach to this issue. In fact, many states have considered these programs as a means to supplement existing clean air efforts and chosen to abandon them.
    Because they just don’t work.

    The reasons are fairly simple : –

    Many state clunker programs focus on a vehicle’s age rather than the emissions the vehicle produces, based on the erroneous perception that all older cars are dirty cars.

    Most clunker programs do not bother to measure the real emissions of the vehicles involved. In order to demonstrate emissions reductions, these programs create estimates of emissions, which studies show are often significantly overstated.

    Despite numerous attempts to remove this prohibition, once lawmakers became educated to the fact that Cash for Clunkers programs are not cost-effective and do not positively impact air quality emissions or fuel economy, they have left the funding prohibition intact. ”
    Steve MacDonald

  • avatar
    Martin Schwoerer

    I have to say I agree with Bertel on this one. In other words, I was wrong.

    The CfC program is working in Germany. People are buying small cars, which is ecologically sensible. It’s a quick boost to the economy, which is what the economy needs, and not another program which will kick in at the end of the year. It’s social, because it mainly helps those who otherwise can’t afford a new car. It benefits forward-looking car makers who aren’t too lazy to deal with the lower market segments. And it is cost-effective, too — just as Bertel pointed out.

  • avatar

    Mr. Bond, we’ve made a terrible mistake…Mr. Bond…Mr. Bond?! I say, are you alright???? Mr Goldfinger has changed his mind and would be terribly upset if your hair was mussed!

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