German Cash for Clunkers: Some Analysis

Germany started the program long before the United States did (with double the money) and it continued far longer as well.  Some results?  This from the Financial Times:

Berlin called time on its €5bn cash-for-clunkers scheme on Wednesday as traditionally frugal German consumers scrambled to secure the last remaining car scrappage rebates before the pot ran dry.

Politicians and economists heralded the experiment as a success but when drivers cease crowding car showrooms this winter the industry could face a painful period of restructuring, while a mild hangover may be in store for domestic consumption.

Its impact was far more immediate than most of the government’s other economic stimulus measures – worth a combined €85bn – prompting the US and several European countries to imitate the idea.

But few countries have rivaled the shopping frenzy that overcame German consumers, who proved that a thrifty nature is more than matched by their love of a good bargain.

Others complain that auto purchases have been brought forward, crowding out other types of spending.

For example, sales of wood and furniture declined by 16.1 per cent in the first six months of this year, which the industry’s trade association this week said was partly because consumers can “only spend each euro once”.

Figures on new car registrations, released on Wednesday, showed a 28 per cent rise in August compared with the same month a year previously.

However, cash-for clunkers may have postponed, but not obviated, the need for a painful shake-out in the car industry.

More than 90,000 automotive jobs are at risk due to an anticipated 25 per cent fall in demand in 2010, a study by Roland Berger Strategy Consultants concluded last week.

“Once the scrappage bonuses run out, the risk of bankruptcy for German car dealerships is somewhere in the region of 30% to 40%,” said Ralf Landmann, a partner in Roland Berger’s automotive division.

For the German economy as a whole the withdrawal of the scrappage stimulus may have less dramatic consequences.

“I don’t think we’re going to see a disaster going forward,” Dirk Schumacher at Goldman Sachs, said. “We will probably see a dent [to consumption] but what the labour market and disinflation are doing is at least as important.”

Others studies had been done showing that consumers pulled in spending on non-automotive goods so that they could buy new cars.  In the coming months car buyers will probably be less common in showrooms as those that were planning to purchase already have.

What is likely is that the feast of sales now will create a famine later on.

Did you like this article? Get new articles daily for free via RSS or Email.