German Auto Subsidy Program Sparks Sales

This aged Romanian made Dacia 1310 is a prime example of the type of car Germany would like to see scrapped. In a bid to stimulate sales improve air quality, Germany is offering eligible new car buyers a US$3200 equivalent subsidy. Since the program was launched on January 17th, car dealerships have been flooded with customers. Based on this good news, might the Obama administration offer the same in the US?

As Congress passes one stimulus or bail out package after another, Americans are going to want to know which programs will actually stick. Some steps will simply expand government’s role in our lives, with not much in place to stimulate the economy directly, at least initially.

First time home buyers will be receiving assistance in the form of an $8000 tax credit if they buy a home this year, a move which could reverse the slumping housing industry. As far as stimulating new car sales, The American Recovery and Reinvestment Act of 2009 will allow car buyers to deduct local and state sales taxes, but that may not be enough to get buyers in dealer showrooms.

Germany’s Program Is Worth A Look

What our elected officials may want to do is take a look at Germany where Chancellor Angela Merkel’s government introduced a program that encourages the scrapping of old cars in favor of purchasing new, more environmentally friendly small cars. Under that program, which began on January 17th, Germany is offering a US$3200 subsidy for people who scrap an old car for a new one.

Since the program began, buyers have been flooding car showrooms which has had helped boost sales while removing older, more polluting cars from the roads. Ford, Dacia, Volkswagen, Opel and Fiat have all benefited from the program with some dealers running out of models.

For the Luxury Brands, Not Much Impact

Higher end automotive dealers such as Audi, BMW and Mercedes aren’t seeing much benefit from the program, likely for the reason that the cars being traded in wouldn’t qualify under the program. In addition, few dealers expect owners of a ten year old VW Polo to trade up to a luxury model in order to take advantage of the program.

But there is one down side to the German program: only the first 600,000 people who take advantage of the offer will get the government subsidiary. With as many as 1.2 million eligible car owners saying that they will definitely use the scrap bonus, the Merkel government may want to expand the program or offer it again in the near future.

Source: The Wall Street Journal