Abwrackprmie, The Sequel
“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.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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@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.
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." http://www.kitco.com/reports/