By on April 8, 2009

“It was a mere footnote in the German government’s latest €50b fiscal stimulus;” writes the Financial Times about Germany’s Abwrackprämie (a.k.a. “cash for clunkers”). The footnote turned into an epic win. BUT—“a scrapping bonus aimed at encouraging new car purchases has become such a success that it has left Berlin facing up to three times the measure’s initial €1.5b price tag.” The FT was lowballing. Today, Germany’s government allocated €5b for Abwrackprämie, the sequel, reports Automobilwoche [sub]. That’s enough money for two million old cars crushed and two million new cars bought. If that’s the way the deal goes down, Germany will have the biggest car sales year in recorded history. Germany’s annual pre-Abwrackprämien sales stood at 3 million. Next year, it might be less, because Berlin made it clear that there will be no more new money after that. In the meantime, Berlin is being waterboarded by Abwrackprämien applications.

Already, the German government received 1.2 million applications, which translates to €3 million in government money. The remaining funds are good for another 800K cars. German economics minister Karl-Theodor zu Guttenberg said that the money will be there until December 31 of this year, or until it’s used up, “and then, that’s definitely it.”

The run on the Abwrackprämie doesn’t just make jobs at carmakers all over the world safer. It also creates new jobs. The Bundesamt für Wirtschaft und Ausfuhrkontrolle (Bafa) which administers the program is drowning in work. No wonder: only 20 people were allocated to administer Berlin’s boondoggle. So far, they’ve processed 75,000 of the 1.2 million applications received. The agency hired 100 new paper pushers and just got permission to hire 30 more. 150 people will process piles of possible 2m applications. Their jobs will be safe for a long, long time.

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18 Comments on “Abwrackprämie, The Sequel...”

  • avatar

    The first thing that the US should do is put car ownership on par with home ownership.

    The new legislation making interest and sales tax deductible is a good start. All registration fees should also be deductible, just like property taxes are.

    That or remove the tax incentives for houses, but that seems much less politically feasible.

  • avatar

    i know this program has been getting a lot of press. but don’t you think it is a smart program.

    since the the gov is giving out money, let it go on newer car and putting the price difference in the market rather than people storing it in socks under their mattresses.

    anything that is made to stir the market is eventually good in the eyes of the economy. but throwing money down the Abyss that is GM and Chrysler is the wrong way to go about it.

    what if the US government put the many billions it has given to GM to buy those so called toxic assets from the banks that are hesitating to lend people money. wouldn’t that relax credit that would go to purchasing new cars. mix that with a bit of cash for clunkers incentive and you can easily see the cycle where the money is going to,and the many jobs that would be preserved.

    in this light, instead of burdening the US economy with trillions of dollars in future generation debt and almost guaranteeing a long term inflation, i think the Gov’s first motion should have been to buy back the toxic assets, make the banks pay for them on a very long run, say a generation (30 years), and those banks that were rendered healthy would re-finance the demand that is currently short and damaging the auto industry, and other inflicted industries.

    on top of that rebuild america, create more jobs, and attempt to re-construct the auto industry to a more sustainable one based on a healthy one rather one that is almost DOA.

  • avatar

    I know which movies belong to the middle and far right photos, but which movie is represented by the photo on the far left of the triumvirate?

  • avatar

    “…which movie is represented by the photo on the far left of the triumvirate?”

    I’m going to guess “Grease 2”, based on the era of the hair.

  • avatar

    The far left picture is from Grease 2.

    . . . Or as I like to call it, Grease 2, Audience 0.

  • avatar

    The new legislation making interest and sales tax deductible is a good start. All registration fees should also be deductible, just like property taxes are.

    No, no, no. One of the reasons the US suffers from far more problematic housing boom-and-busts is because of such deductions.

    I’m all for temporarily heating up the car market, and a cash-for-clunkers program is not a bad way to do that, but a permanent tax rate is exactly the wrong thing to do: it gives further incentives to people to buy beyond their means, and further decimates government revenue at a time when programs are fraying and debt is mounting.

    You want to help the car market, and the market in general? Do something about wage erosion, especially for people who wouldn’t benefit from a tax cut anyways.

  • avatar

    As soon as they pull the slush the sales will fall off a cliff.

    So how many autos do they expect to sell in Deutschland this year?

    I see this ending up badly.

  • avatar

    “The first thing that the US should do is put car ownership on par with home ownership.
    The new legislation making interest and sales tax deductible is a good start.”

    Oh yes, because that kind of market distortion has worked out SO WELL for us and the entire world economy lately as the chickens came home to roost. Great plan.

    That’s what we need: the government force-feeding Americans with powerful incentives to take on as much car loan DEBT as we can possibly qualify for.

  • avatar

    The first thing that the US should do is put car ownership on par with home ownership.

    The theory behind homeownership is that the average person should contribute to the stability of his community (people who own property feel invested and are less likely to riot) and be able to have a rent-free retirement.

    Cars pollute, suck up infrastructure like crazy, depreciate like rocks and, in the case of most countries, including the US, increase the trade deficit. Unless we want people to sleep in their cars, I wouldn’t suggest doing this.

  • avatar

    The spiralling admin costs remind me of Canada’s long-gun registry boondoggle, wherein a program projected to cost a pittance became a multi-billion dollar black hole of waste.

  • avatar

    The first thing that the US should do is put car ownership on par with home ownership.

    Homes are historically (and most certainly will return to being) appreciating-value assets. Why on earth would you want to incent people to put more money into assets that are 100%, without question, going to depreciate? Might as well make any income spent purchasing GM stock tax-exempt…

  • avatar

    As soon as they pull the slush the sales will fall off a cliff.

    The theory with this program is that it’s a) not a direct subsidy, b) drops off slowly as the pool of cars gets smaller (and, coincidentally, as the market picks up) and c) is ongoing but less costly as time progresses.

    Unlike, say, a direct bailout, it’s a decent strategy. You provide quick, direct stimulus when it’s needed, and peters out in such a way that it can be painlessly killed and—this is important—before it can become a boondoggle.

    And, best of all, you don’t have to participate, unlike the forced wealth redistribution that is the American and Canadian programs. It’s market distortion, sure, but it’s not bad.

  • avatar

    The theory is fine but as soon as the program stops sales will nosedive. Only free markets operate properly which is why this will be a failure.

    Bertel do you know if they put catalytic convertors in Chinese Autos?

  • avatar

    @ psarhjinian;

    The problem with the program is works with German consumers, but probably not American ones. Maybe Canadians.

    Germans don’t have sales. They don’t have employee discounts, They don’t have $2500 trade-in on any piece of junk.

    We do. I’m sure I can find someone to take my 97 SAAB off my hands for $3500. Maybe another SAAB dealer, which is how I got this one. That 9-7 looks so nice…

    American consumers who are price sensitive enough that $3000 would make a difference already have enough options for a new car. OK, maybe a Honda Fit/Jazz at 12K might be nice. Or a MINI cooper. Weird that SAAB and MINI like the capital letters. Anyway. It won’t be as big in the US as it in Germany, but it will do something.

    Maybe Japan can kick in the $15 billion for the program since we’ll be buying their cars anyway. Or Chrysler can bring out the FIAT 500 just in time for a voucher…

  • avatar


    Bertel do you know if they put catalytic convertors in Chinese Autos?

    Yes, they do. What do you think this is, a 3rd world country? Actually, you are SOL if you own an old dirtbag (less than Euro 4) on wheels. You are issued a yellow tag and are banned from driving into Beijing.

  • avatar
    Kristjan Ambroz

    There is another difference, which makes this work well in Germany (and potentially France and Italy) but not the US or UK. In the former countries people are very conservative when it comes to personal finances and will tend not to overstep their limits of paying this off. In the UK and US it’s just a recipe for an even bigger disaster a couple of months down the line.

    More lending is not what the US needs (unless an alcoholic really will be cured by a steadily increasing supply of alcohol – who knows) – it’s more along the lines of a painful recovery process associated with forcing people to get back mentally to the early 70s mindset, where you could spend what you have, and not increasingly and repetitively more and more. The fundamental problem will not be government intervention into the markets, it will be spending beyond means for an unsustainably long time.

  • avatar

    @Kristjan Ambroz;

    completely agree with the hangover analogy. Another drink does sometimes work to make a hangover go away. It goes to a fundamental discussion: do we just need to have that drink, and in a year or two the economy will be fixed, or do we need a fundamental realignment in consumer habits?

    Cars for clunkers in the US would make some sense if:

    1. You can get large SUVs/pickups off the road. Most CARS, even large ones, are fairly efficient already.

    2. Making buying small cars hip and popular. Gas prices really did that until last year.

    3. Make a sustained commitment to US jobs. Problem with the cars for clunkers is it is one shot boost. After one year sales numbers will slump.

    Another big difference is youth car ownership. That is different that Germany or Italy, where many people don’t own cars until they turn 30. Expense, maintenance and garaging are more expensive. Here, almost all middle class kids from 16 on have cars. You need one to live. That is the used market for you. Their parents may or may not be the legal owners, and that would have an impact on a clunkers program as well.

    A VERY limited program to get cars that fail an emissions test would also be good. These are 20+ old cars being driven around. They are VERY rare and you have to question how many miles are being put on them.

  • avatar

    Thanks Bertel. I was wondering, why the sharp jump in Platinum prices?

    “Surveying the wreckage of the international car industry, which accounts for
    over half of platinum demand in a normal year, this rise seems rather
    inexplicable. Nevertheless, there are a few hopeful signs that the market is
    bottoming. In the US, car sales in March were somewhat improved on those for
    February and January. For platinum, the European market is of much more
    importance, and while full data is not yet available, it is for markets covering
    77% of European sales, and all these show a year-on-year improvement.
    Foremost is Germany, where sales were 401,000 units, 40% higher than in
    March 2008, as consumers took advantage of the lavish scrappage incentives on
    older cars. Clearly some, perhaps most, of this extra demand has been brought
    forward from later months, and sales are likely to fall back sharply. But by then
    other markets might be recovering, and it is now providing a useful pickup in
    demand which has fed through to production, German output was 395,800
    vehicles in March, down 19% year-on-year but up 40.5% from February.”

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