Germany's 'Scrap' Bonus Fuels Car Sales - WSJ.com
FEBRUARY 27, 2009, 9:10 P.M. ET
Germany's 'Scrap' Bonus Fuels Car Sales
By ALMUT SCHOENFELD and MARCUS WALKER
BERLIN -- Around the world, some economists and governments have their doubts about whether costly fiscal-stimulus measures will work. But in Germany, one measure already is a roaring success.
Germany's €2,500 ($3,200) subsidy for people who scrap an old car and buy a new one has triggered a stampede to dealerships and a run on small cars. It's also inspiring retailers of other products, from electronics to false teeth, to copy the idea.
A forklift sets the body of a scrapped car in its place in a giant hangar in Berlin. The German government is offering €2,500 for people willing to trade in their old car for a new one.
Falling car production has become a significant drag on the economy in Germany, Japan, the U.S. and other major car-producing nations. The sector's sales crisis knocked about 0.6% off Germany's gross domestic product in the 2008 fourth quarter, according to a report by Credit Suisse, contributing to the 2.1% overall contraction in Europe's biggest economy last quarter.
Germany's auto industry made 17% fewer cars in the fourth quarter than in the year-earlier period, as the global economic slowdown hit exports at BMW AG, Daimler AG and other car makers. The industry's importance to Germany -- where the government estimates that around one in seven jobs depends directly or indirectly on autos -- led Chancellor Angela Merkel's government to introduce the old-for-new car subsidy. It took effect Jan. 27.
Since then the program has sparked a car-buying craze in a nation notoriously reluctant to consume. Sabine Mumm, a librarian from Schleswig-Holstein in Germany's north, decided last month to buy her first new car in more than a decade. It took several weeks before she found a dealer with any in stock.
"All the available cars were gone, especially the small cars," she says. Dealerships were so full of customers, she says, that "it was really hard even to get a dealer's attention." After learning of the long waiting list for a Ford, she has just bought a Dacia -- the Romanian subsidiary of France's Renault SA. The price, thanks to the government's subsidy, was only €7,500.
To get the €2,500 government check, people must scrap an existing car that's at least nine years old and buy a new car that meets the latest emissions standards. So far, 134,000 people have applied the so-called scrap bonus, a number rising by 7,000 a day.
Other European countries including France, Italy and Spain have introduced "scrap bonuses" and in some cases, subsidized loans for buying cars. The trend is spreading to Eastern Europe. Slovakia said on Friday it will pay people up to €1,500 for their old cars if they buy a new one. Some analysts argue the programs will have little lasting effect, because people will simply use the subsidy to buy a new car now rather than later.
Similar programs have had mixed results. In France, scrap bonuses in the mid-1990s only led to a temporary rise in car purchases. But in Italy a decade ago, new-car purchases stayed strong even after a similar subsidy ran out, according to the Credit Suisse report.
The early signs are that the scrap bonus is luring some Germans out of their low-spending, high-saving shell.
"It's a real sales boom," says Ceyhun Tan, a Volkswagen dealer in Berlin. He says his February sales are two to three times as high as a year ago, thanks to the scrap bonus. Most of his new wave of customers, says Mr. Tan, are elderly people whose ancient autos are worth less on the used-car market than the scrap bonus.
Other consumer sectors are trying to capitalize on scrap-bonus fever, even without any government money. Electronics retailer Media Markt offered computer buyers €100 for their old PC for a limited time this month. Upscale tailors Herr von Eden is offering clients up to €300 for their old suits if they order a new one. And dentists in Germany's northeast are offering patients €100 for their old false teeth if their buy new ones -- but only if the switch is medically necessary, says Dietmar Österreich, head of the regional dentists' association.
The auto bonuses are lifting makers of small cars most, including VW, General Motors Corp.'s struggling German unit Opel, and foreign brands such as Dacia and Fiat.
A €2,500 subsidy makes less of a difference to buyers of a €40,000 sedan, says Audi dealer Pitt Petruschke. His Berlin showroom hasn't taken many new-for-old orders. Even so, the program is lifting Germans psychologically, he says.
A survey by research institute Forsa found that of 16 million Germans who own a sufficiently old car, 1.2 million people firmly plan to use the scrap bonus and many more are thinking about it. Many may be disappointed: The government plans to reward only the first 600,000 new-car purchases.
