By on April 4, 2009

You want unintended consequences? You’ve got unintended consequences: The German Abwrackprämie is turning into an eruption of Mt. St. Helens proportions. When the German government launched their cash4clunkers boondoggle two months ago, the lawmakers earmarked €1.5 bn to pay for the program. At a rate of €2.5K for each German jalopy put out of its misery (exchanged for a brand new one), the money should have lasted for 600K cars. Mind you, the German new car market stands now at around 3 million annually, so 20 percent on top of that was seen as a goal to which nobody dreamed of aspiring. Now, Germany finds itself in the grips of the Abwrackprämien virus that’s spreading faster than the winter flu.

The Bundesamt für Wirtschaft und Ausfuhrkontrolle (BAFA) which administers the program is drowning in paperwork. When the program had reached more than 470K applications, the program was put on-line. Then it exploded.

As of April 3, 471K applications were filed in paper form, followed by a tsunami of 688K applications filed on-line. That’s well over a million, already one third of Germany’s annual auto sales. And there’s no end in sight.

[Real time-ish statistics can be obtained here. The blue bar is the old style paper applications, the red bar reflects the on-line applications.]

There are suspicions that people might have done a little double filing (on paper and on-line). Others may just have reserved their Abwrackprämie for the heck of it. Be that as it may, Germany could turn millions of clunkers into new cars and create a new car boom never seen since Germany’s reunification 1990.

Obviously, the allocated €1.5 bn is already spent. Germany’s government has informed the populace that their coveted Abwrackprämie is safe at least until end of May. And why not? The program is pretty much self financing; German VAT is 19 percent. If a new car costs more than €13K, the government is in the green.

What’s next? Discussions range from paying the full monty throughout 2009 to phasing it out slowly, das Autohaus reports.

More unintended consequences: The parts market is swamped with cheap used and/or reconditioned parts, extracted from the clunkers before crushing. Which is good for people who want low cost parts, but not so good for people who are in the parts business, such as yours truly.

Get the latest TTAC e-Newsletter!

34 Comments on “Abwrackprämie 10 – Carmageddon 0...”


  • avatar
    John Horner

    Germany and other European nations could do quite a lot of stimulus by simply declaring a VAT tax holiday. Increased economic activity might create enough income taxes and reduced welfare payments to offset the VAT tax reductions.

  • avatar
    JJ

    Ouch…

    Right here with the neighbours (netherlands) the government has confirmed a EUR1000 “abwrackprämie” of our own. Of course we don’t really have much of an auto industry, except some suppliers, but anyway.

    Also, I’m happy for all those new shiny bimmers that you Germans buy and then later get exported to the Netherlands after two years in order to bypass some of the rediculous and illegal taxes we have on cars right here.

    But sorry to hear the bad personal news for you.

  • avatar
    RogerB34

    The object was to reduce carbon emissions per the EU Kyoto agreement. The error was in allowing parts removal from scrapped cars. For those interested in the coming USA Kyoto experiment see the European Community EIR 2008 pdf. A little slow and several steps to open. A Depression will solve the problem because the EU15 haven’t a chance of making their goals:
    http://unfccc.int/national_reports/annex_i_ghg_inventories/national_inventories_submissions/items/4303.php

  • avatar
    Robert Schwartz

    GM and Chrysler have been offering more than $3000 off on their rides and they have no takers. Why are Germans such cheap dates?

  • avatar

    “Ach, mien Golf!”

    I don’t see any Trabants in that pile… unfortunately.

    Note to Germany: Please don’t crush any W124 Diesels! Send them over here to me.

    –chuck

  • avatar
    50merc

    Germany is indeed “populous,” with a population density seven times that of the United States. But I think you meant “populace.” (No offense intended: anyone who can spell in German has my admiration. Say, why can’t Germans use their space bar once in a while?)

    Chuck, I’ll take a W124 too. And a Trabant, if only to exhibit in the Museum of Atrocities of Communism.

  • avatar
    97escort

    Overall the German auto industry is not booming because exports have fallen dramatically:

    http://www.dw-world.de/dw/article/0,,4070176,00.html

  • avatar

    You guys can have the W124s. Send me containers crammed with US-compatible model diesel half-cuts. VW/Audi, Saab/Opel, Volvo? You know who you are. Surely these things are starting to pile up?

  • avatar
    John Horner

    “The error was in allowing parts removal from scrapped cars.”

    How does recycling parts hurt anything? If the recycled parts are used instead of new parts then there is certainly an environmental benefit.

  • avatar
    madcynic

    Let’s not forget that a certain percentage of these applications come from people killing off vehicles that might fetch double the 2.5k€ in the used car market.

    Parts removal from the scrapped cars is an issue, because you are not reqquired to recycle them per se – you can just sell them as spares. Thus, an engine from a scrapped car could live on, thus negating the carbon effect…

  • avatar
    Jimal

    What is the ratio of people turning their cars in for the credit to people keeping their clunkers alive with the cheap reclaimed parts from said clunkers? Allowing the “harvesting of organs” from cars heading to the gallows seems like a good thing to me. The small number of people who want to keep their old cars (collectors and otherwise) can do so affordably, the old parts are used over again (and with the exception of engines and emissions equipment the carbon implications are nil) and you’re not facing the extinction of most cars.

  • avatar
    jeffn3545

    “And why not? The program is pretty much self financing; German VAT is 19 percent. If a new car costs more than €13K, the government is in the green.”

    This would only be true if the German government were awash in surplus cash, which it is not. So while you suggest that the program is self financing, the reality is that the money that is being redirected to each clunker purchase is coming at the expense of some other program funding.

    In the big picture this is not a large budget but to portray it as free money because of the VAT only perpetuates a lack of insight and understanding about public finance.

    Let me put another argument out there, if new cars were not being taxed at 19% how many of those clunkers would have been replaced irrespective of any government program? When a €20k car is actually costing you €24k, you tend to think a little more about the purchase…

  • avatar
    ihatetrees

    Robert Schwartz :
    GM and Chrysler have been offering more than $3000 off on their rides and they have no takers. Why are Germans such cheap dates?

    If Germans were restricted to GM/Chrysler products, there would be no takers either.

  • avatar
    charly

    You don’t think a liitle more about your purchase. You just buy the €20k car inc. VAT instead. That’s is what happens on aggregate with luxury goods and cars outside the cheapest class are luxury goods

  • avatar
    TonyJZX

    is this helping ‘german industry’ that much at all?

    we’ve seen that the big movement is in Romanian Dacias and other cheap <10,000 euro cars.

    How many german models are under that? The VW Polos? Opels? Fords? Can’t be many cheap intro BMWs/Mercs/Audis…

  • avatar
    kowsnofskia

    How many german models are under that? The VW Polos? Opels? Fords? Can’t be many cheap intro BMWs/Mercs/Audis…

    http://www.dw-world.de/dw/article/0,,4070176,00.html

    “”An initial analysis shows that one in two consumers who scrap their old cars chooses a model made by a German company,” Wissmann said, adding that the industry was hoping to break the 3 million mark for new car registrations in 2009.”

    So it seems that only half of these new sales go to German companies.

  • avatar
    yankinwaoz

    The parts don’t have to stay in Germany. There are plenty of older BMW’s and Mercedes-Benzs that will need parts in the Middle East and eastern Europe.

  • avatar

    @Jimal et al:
    What is the ratio of people turning their cars in for the credit to people keeping their clunkers alive with the cheap reclaimed parts from said clunkers?

    There are approximately 25m cars on Germany’s road, 9 years and older, that would qualify. 10 percent of Germany’s 50m cars are older than 16 years …

    A million or two culled would make barely a dent into that huge herd. However, people who own cars 9 years and older usually don’t buy new. They usually buy used. Therefore, those million or two would be mostly incremental sales, and have a huge effect on a German domestic market that buys 3m new cars a year.

  • avatar
    bluecon

    This is why the markets should not be meddled with. In the US the government is trying very hard not to let the housing market correct. A serious error if you believe in the Austrian Theories of economics. It was government meddling in keeping the interest rates artificially low that caused the economic problem. There ain’t no free lunch.

    Another unintended consequence will be flooding the market with cheap steel, etc., and likely hurting those industries.

    The old saying.

    “When your neighbour loses his job it is a recession and when you lose yours it is a depression.”

  • avatar
    Pch101

    the reality is that the money that is being redirected to each clunker purchase is coming at the expense of some other program funding.

    The collection of the tax occurs at the point of purchase, so no, you are not correct.

    Let me put another argument out there, if new cars were not being taxed at 19% how many of those clunkers would have been replaced irrespective of any government program?

    That misses the point, though. The government wants to provide a temporary lift to domestic car sales, without a substantial loss of tax revenues. Eliminating the tax would obviously cause a loss of tax revenues, so one of the goals would be missed.

    Governments routinely use tax policy to shape behavior. If the Europeans were to eliminate the VAT, the net long term result would be to create a substantial trade deficit, just as the US has today. Lower taxes –> more consumption –> more imported goods as foreign rivals leap in to take advantage of the increase in disposable income.

    They also don’t necessarily want a lot more new cars on the road to demand imported oil; it’s meant to be a temporary shot in the arm, not a permanent policy.

    A serious error if you believe in the Austrian Theories of economics.

    Fortunately, almost nobody does. Most Austrian concepts are considered to be on the fringe, not just by Keynesians but also by monetarists, such as the late Milton Friedman.

    It has become more of an internet cult than a serious school of thought, appealing to the Ron Paul populists who apparently don’t know better. Don’t take it seriously; nobody else does.

  • avatar
    bluecon

    The government used tax policy and regulation to destroy the economy. Good job.

    Please don’t mention the great Milton Friedman with the repeatedly failed Keynesian economics. Friedman advocated limited government and free markets. The Austrian School of economics is taken very seriously. Reagan was a success, FDR and soon Obama were/will be major failures.

    The one defining thing with socialism and Keyesian spending is that they always fail. This time will be no different.

    Let us watch the results. Ron Paul is being proven right before are very eyes and we are now living Ayn Rands “Atlas Shrugged”.

    Ron Paul is right.

  • avatar
    Pch101

    The Austrian School of economics is taken very seriously.

    Perhaps you take it seriously, but most economists in all camps have rejected it, including Milton Friedman.

    Friedman advocated limited government and free markets.

    And he also flatly rejected the Hayek and Mises view of the business cycle, which is good as saying that he rejected the Austrian school of thought.

    You are a bit too quick to pick and choose your facts selectively. If you like Milton Friedman so much, then ask yourself why he didn’t think much of your pied pipers of anarcho-capitalism. You’re confusing one set of beliefs with another.

  • avatar
    Gunit

    I’ve read that over 50% of the carbon footprint created by any vehicle is generated during it’s production (when including the production/shipping of all of it’s components). So while the new cars may run cleaner, this bill generates more pollution and waste.

    Fewer old cars on the road raises the price for people at the bottom end of the wealth scale. So some of their taxes go towards financing wealthier peoples car purchase.

    With more old car parts and fewer old cars, recycling becomes less profitable. Maybe we should just all stop recycling, after all it’s taking a job away from someone making new things.

    As for the program being self financing, you’d really have to know how many of these are sales that wouldn’t have happened anyway. If you calculate they are all sales that wouldn’t have happened, it self finances, if you calculate that they would’ve happened in the next 36 months, then you’ve just created a rush and will see a compensatory diminishment in sales in the near future. It’s very likely many people who were going to buy anyway are applying for this, and that it has ‘incentivized’ some to buy who weren’t planning on it.

  • avatar
    bluecon

    Most economist said we were not headed for a severe recession. They were all wrong except for Schiff, Marc Faber, Jim Rogers and a few others.

    You can take the Chicago School beliefs of Friedman or the Austrian School beliefs. both advocate for free markets and limited government and realize that Keynesian spending does not work.

    Your just providing silly nitpicking.

  • avatar
    Pch101

    Your just providing silly nitpicking.

    Friedman rejected the underlying principle of the Austrian school. It’s not nitpicking, it’s a fundamental disagreement. He didn’t agree with your heroes and their flawed analysis. Read Friedman, and you can see that for yourself.

    You’d like to think that they are the same, but they aren’t. They may share political views, but they do not share economic views.

    They were all wrong except for Schiff, Marc Faber, Jim Rogers and a few others.

    As I already pointed out to you, Schiff has been mostly wrong, and has lost people a fortune. He has wrong because his Austrian view caused him to completely miss the rebound of the dollar or the bursting of the commodities and oil bubbles.

    That’s what you get when you confuse politics with business. People start seeing what they want to see, instead of what is actually there.

  • avatar
    bluecon

    It all gets very complicated but the basics of low taxes and small government are shared by Friedman and the Austrians. If you do that likely the rest doesn’t matter very much. Instead we have a large government manipulating every phase of the economy.

    The problem with your thinking is you think this is over with and the economy is recovering. This is just starting and is going to get much worse. And Schiff will be proven correct. Just timing. Investment wise I am more a follower of Marc Faber and Jim Rogers.

    If you want to see how right Schiff was in his prediction watch this. And he is correct about the cure.

    http://www.youtube.com/watch?v=2I0QN-FYkpw

    And I realize that Faber and Rogers have also been wrong at times.
    If it was easy everybody would be rich.

  • avatar
    Pch101

    the basics of low taxes and small government are shared by Friedman and the Austrians.

    Eisenhower and Hitler both shared a commitment to building expressways, but that didn’t make Ike a Nazi or Hitler a Republican.

    In their grasp for credibility, the fringe internet Austrians like to affiliate themselves with Friedman. But that desire for kinship was not mutual. This is what he said to Barron’s in an interview:

    I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse. You have Rothbard saying it was a great mistake not to let the whole banking system collapse. I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.

    Friedman would clearly support government intervention during a time like this. His view of it would not be a Keynesian one, but he wouldn’t care to do nothing, either. In his view, it is times like these when the Austrian view is at its worst.

    I know that this will baffle some people, so brace yourself, but there are more than two schools of thought here. Friedman took issue with both the Keynesians and the Austrians; he did not agree with either of them on economic fundamentals. You’ll have to find another spiritual leader, because Milton ain’t it.

    If you want to see how right Schiff was in his prediction watch this.

    I obviously know about Schiff. I have cited to you specific examples of his failings, which you clearly wish to ignore. Whereas I’m willing to look at everything he says, you are eager to skip the inconvenient bits, which consists of the majority of his work. For whatever reason, you have this craving to believe the guy, even though he has largely blown it.

  • avatar
    bluecon

    The 1930’s. You’re joking.

    FDR had many of the same ideas as Hitler’s National Socialist Workers Party. He attempted to take over industry, confiscated the gold from the people, set prices artificially high, encouraged unions, and more, as well as attempting to pack the Supreme Court while he extended the length of the Depresson.

    You can argue the semantics of the Chicago School against the Austrians all day. It is irrelevant and they are mostly the same and I will take either one. The important part is small government and low regulations and lots of freedom like the Constitution said. And both abhor Keynesian spending tactics.

    Friedman would want a smaller government not a bigger one. You gotta remember he was Reagan’s main economist and has already done this successfully. He wouldn’t recomend spending like a drunken sailor. Remember that nothing FDR and the Keynesians did had any affect stopping the depression. They actually made it worse. And Hoover also spent plenty of money to no affect.

    Marc Faber says Obama is following the Zimbabwe School of Economics. I would agree.

    http://www.youtube.com/watch?v=iy43NwpdHRY&feature=channel_page

    If you watch the Youtube on Schiff you will see how dead right he was in predictig this, while the whole of the US government had not a clue.
    Peter Schiff has been far more right than wrong. He was buying gold when it was in the $200’s and he is right about the findamentals of the economy.

    Warren Buffet has made many more mistakes than Peter Schiff in the last couple years. All investors get the timing wrong. I imagine this proves Buffet knows nothing about investing?

    There is no investor in the world that has not been wrong. Buffet was wrong many times and it means nothing if you are wrong on the small things while getting the big things right.

  • avatar
    Pch101

    You can argue the semantics of the Chicago School against the Austrians all day.

    Don’t blame me, blame Milton Friedman. I quoted him verbatim.

    Those were Friedman’s words, not mine. If you don’t like what he said, then take it up with his estate.

    Peter Schiff has been far more right than wrong.

    We already went through that, even if you care to ignore it. Not at all true. He bought commodities at the top and got his dollar call exactly wrong, and for all the wrong reasons. Bad, bad advice.

    Stop looking for heroes. They tend to let you down, especially when they say stuff that you don’t want to hear.

  • avatar
    bluecon

    i am not blaming you for anuthing, just pointing out that the basic beliefs of small government are common with the Austrians and Chicago gang and they are both firmly against the Obama style of Zimbabwe School of Economics.

    Peter Schiff predicted this correctly years ahead of time. That is the fact and it is well documented. Look at the Youtube.

  • avatar
    Pch101

    the basic beliefs of small government are common with the Austrians and Chicago gang

    Right, we covered that. They share a lot of political views. I already stated that earlier, no need to repeat it.

    What you apparently choose to ignore, despite the evidence provided to you, is that they differ markedly on economic views. That should matter a little bit to you, given that we were previously discussing economic issues, but you apparently want to cover your eyes and ears, and completely ignore his rather nasty remarks about your worldview.

    Here you have someone whom you supposedly admire attacking your economic perspective, not only dismissing it but calling it “harmful” and holding them responsible for the deepening of the Depression. Not exactly a bosom buddy to folks of your persuasion.

    Despite your hopes that it would be otherwise, Friedman did not respect your views in the way that you supposedly admire his. He was just as dismissive of Austrian economics as I am, even though we come from different places.

  • avatar

    @Gunit:
    As for the program being self financing, you’d really have to know how many of these are sales that wouldn’t have happened anyway. If you calculate they are all sales that wouldn’t have happened, it self finances, if you calculate that they would’ve happened in the next 36 months, then you’ve just created a rush and will see a compensatory diminishment in sales in the near future. It’s very likely many people who were going to buy anyway are applying for this, and that it has ‘incentivized’ some to buy who weren’t planning on it.

    Now I won’t know a Schiff from a boat full of drunken sailors, nor a Friedman from a peacenik. My knowledge of Austrian v.v. Chicago is limited to Wiener Schnitzels and ribeyes. But I’ve been in this industry for more than 30 years, intimately, and there’s one thing I can tell you with deep conviction: People in Germany who drive cars 9 years or older extremely rarely buy new again. Usually, they buy used. Often out of 3rd, even 4th or 5th hand. I’d venture the guess that more than 80% of these sales are incremental. If not more.

  • avatar
    bluecon

    And if they bought new and the old cars are crushed now they no longer have old cars that need repairing. The part resale market is affected in many ways.

    Actually me and Friedman agree. Small government is the way to go.

  • avatar
    TireGuy

    John Horner :
    April 4th, 2009 at 11:22 am

    Germany and other European nations could do quite a lot of stimulus by simply declaring a VAT tax holiday. Increased economic activity might create enough income taxes and reduced welfare payments to offset the VAT tax reductions.

    You know …. in such case, assuming e.g. there was a waiver on VAT on Cars, then we would have a HUGE discussion in Germany how unfair this would be to the poor people. A guy buying a Porsche for net 100.000 Euro would save 19.000 Euro, while the purchaser of a 10.000 Euro car would save only 1.900 Euro. NO WAY that this would be acceptable. …:-(

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • eiafuawn: I didn’t see you add a /s at the end to indicate sarcasm on your post. In the event you forgot to add it,...
  • Aussie V8: Yes, correct. The Tri-matic was released in 1970 for the very last of the HTs. The 308 and 253 V8s could...
  • Aussie V8: I said that he didn’t mention GM usage outside of North America. Rolls Royce, Jaguar and Ferrari are...
  • ToolGuy: What you describe is exactly how my spouse’s 2010 RAV4 2.5L does it. 400-ish bucks for the front...
  • Tstag: A shortage of Lithium just means that ICE cars will go for longer and that many of the brands listed above...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Jo Borras
  • Mark Baruth
  • Ronnie Schreiber