Germany is considering extending it’s incentives to buy new cars with a further Euro 1bn (US$ 1.35bn) to maintain sales that have jumped by a fifth following the introduction of a scheme funded in January. The initial scheme was started by the government with Euro 1.5bn (US$ 2bn), half of which has already been used. The scheme provides Euro 2,500 (US$ 3375) in cash for each buyer who trades in his older vehicle for a new eco-friendly model according to the Telegraph newspaper.
Germany is Europe’s biggest car market and the automotive sector accounts for more than one in five jobs. It is no surprise the Germans have led Europe on this issue. Others have not been far behind though. At least eight of the EU’s 27 countries now have incentive schemes in place. The various governments are holding the scheme up as a major success as new registrations have jumped. But our sources in the market suggest the benefits are being spread rather wider than the German government intended. Many of the smallest, most economical vehicles are made in Italy, Spain and France directly benefiting vehicle manufacturers in those countries rather than Porsche, Mercedes, BMW or even VW/Audi. Still what’s good for Germany is good for the EU goes the well worn mantra and in this instance that is certainly the result.
The same would be the case in the US if incentive schemes were skewed towards encouraging buyers to opt for more fuel efficient smaller vehicles, the focus many in Congress would favor. Most of the manufacturers of these vehicles are Japanese, albeit employing American workers in American factories. What the scheme does appear to show is that there is a level of pent up demand and the switch to flick is cost. If the incentive is big enough, buyers will come back into the market. Maybe rather than throwing tax dollars into the black hole of company balance sheets, the US administration would be better off taking the German example and offering a tax break or cash back on new car purchases. The market place will then decide where the jobs are to be preserved. You can only sell a car once. Who better to decide which manufacturers should survive and which should close than the market place? Isn’t it bizarre that socialist Germany leaves the decision to the market as to which car companies prosper yet capitalist America takes the socialist path of direct loans none of which have much hope of ever being repaid?