The German clunker culling initiative appears to work. Dealers report increased traffic. According to two independent surveys, one by BKP Consulting and one by Ernst & Young, 30 percent of the surveyed said they would buy a new car due to the clunker culling money, Das Autohaus reports. There are no exact sales data yet. However, both dealers and wrecking yards report increased traffic. The German car interest group VDA revised its prior prognosis of 2.9m units sold in 2009 up to slightly over 3m. Germans will receive €2.5K if they buy a new car, or a car no older than one year that was registered to a dealer or auto manufacturer – German lawmakers are sensitive to the shenanigans of automakers who increase their sales statistics by registering the car in their name or the name of the dealer. The clunker must be at least nine years old and must be scrapped.
The idea is not new. It was first launched in France, where people get €1K if they scrap a car that is at least 10 years old and buy a new one. Austria already announced a similar one. Austria pays €1.5K for scrapped cars older than 13 years. It is to be expected that most of Europe will jump on the clunker culling bandwagon, each with different conditions. The German program is not without its critics.
It’s greenwashed; the new car must be at least Euro IV compliant. However, Euro IV has been in effect since 2005. A new car that is not Euro IV compliant would be illegal anyway. There is no CO2 limitation.
The German regulation also isn’t finalized. There are doubts how it works exactly. The government allocated €1.5b for the program, when the budget is exhausted, they will be no more payments. The budget lasts for 600K cars.
According to another (we’d say, very optimistic) study, also quoted by Autohaus, 1.2m people plan to scrap their old car, take the money and buy a new one. The German media urges people to act fast. Nobody tells them that total car sales in Germany were 3m in 2008.
On the other hand, there is no shortage of clunkers in Deutschland. Germany has more the 50m cars on the road, and the average age is 8.4 years. Theoretically, approximately 25m cars would qualify. However, holders of clunkers usually buy another clunker, and rarely buy new.
People who are driving 10 year old cars typically are not the ones who should be buying new cars. They should be taking the government’s cash and buying 7 year old cars, which they can actually afford.
By pushing them to buy new cars, the government is really just subsidizing the repo industry. At least that’s how it would play out in the US.
They tried this a couple of years ago down here. It finally dawned on them that people who have 10 year old cars (average value of 10 year old cars is from 4000 USD to 5000 USD) don’t have the extra coin to buy brand new even when the government gave them about a 1000 USD. The brand new car would cost at least 10 000 USD. Add in licensing fees, taxing, mandatory insurance, a full tank of gas (cars come without gas here) which in Brazil are so stupidly high (for that 1000 dollar car at least another 1 200 dollars not counting private insurance) and the hill becomes ever steeper.
Plus the economics never work. If the people take this up there’s a deluge of 10 year old cars into the market, so the price of the clunkers drop, demand for brand new cars goes up, which forces their prices up and there you have it. No viability as with almost all government interventions into the economy. Only if the government guarantees prices and other such heteredox methods and we all know the hole this all leads to.
As many have said before, “the road to hell is paved with good intentions.”
What happens to all the carbons that were used making the original car? What happens to the carbons sequestered in the old car? Won’t somebody please think of the carbons?!?
My brother owns and runs a junkyard,he prefers the term ‘auto recycler’.He buys old worn out vehicles,no late model wrecks.We have mandatory emmision testing,and safety checks.If they don’t pass they are heading to his junkyard.What more regulation do we need?
A huge part of his buisness is used parts.Times are tough,cars are on the road longer.
A guy with a little mechanical knowledge and a low budget,can keep a car going for a remarkable amount of time.Its wrong to try and force these folks into newer cars,beyond thier financial means.
The industry will self regulate,cars that really are junk will make it to the junkyard.There is allways freelance towtruck guys cruising around picking up dead carcases.
I see no reason at all for government intervention.
These schemes work if the aim is to improve fleet efficiency and boost sales/values of used cars which ultimately helps the new car market.
If a clapped out 20 year old car is junked, and that person buys a 7 year old car, it only has to be about 15% more efficient to recover the old car’s “carbons”.
Hell, with Bigish3 resale values you could get out of your falling/rusting apart Bigish3 clunker and into a 7 year old one with change at those rebates…..
Sherborn Sean “ People who are driving 10 year old cars typically are not the ones who should be buying new cars……By pushing them to buy new cars, the government is really just subsidizing the repo industry.”
Don’t forget that some of us do know how to manage our money. This will be great to professional cheapskates like myself who drive our cars till they drop. It won’t entice me out of my car as I’m not a financial idiot but if they keep the law on the books I’ll just use it when its time.
Maybe the government could mandate a switch over to High Definition fuel and force everyone to either buy a new car, or make them buy a converter box so the old car will be able to run on the new fuel ?.
SherbornSean :
January 26th, 2009 at 7:38 am
People who are driving 10 year old cars typically are not the ones who should be buying new cars. They should be taking the government’s cash and buying 7 year old cars, which they can actually afford.
By pushing them to buy new cars, the government is really just subsidizing the repo industry. At least that’s how it would play out in the US.
I do not think that statement is absolutely true for Germany. Germans do not switch their cars as often as the Americans do. On the other hand, many people love to buy a new car and to get the chance to select what specifics it will have (further difference to the US: the Germans are willing to wait 4 months for their specialized car).
The bigger problem in my view is that the demand created now will then be missed in the following year – which continues the problem.
By the way: the “repo” industry does not play a real role in Germany. People have to make a down payment, and anyway cars will have to be returned or paid after 4 years the latest. Since the old car must be at least 9 years old, I do not see where any impact should come from.
While many that own older cars do so for financial reasons, and can only afford to buy used cars…there are those that keep a car until it dies, whether they can afford a new one or not. I am one of those types, and still have an 84 760 running well (at the moment).
I have the cash to buy a new vehicle (most likely a Mazda5), but if I had an additional rebate like this plus whatever cash is already on the hood of a car…it might tempt me a bit more. I’m sure there are others in my position, maybe a minority of old-car owners though but enough to take some effect. Otherwise I’ll wait for a repair over $1000 for me to give up on the Volvo (finally changed original oil pump…turbo is next).
There was an article a few years back in Car and Driver, where they did a study together with Consumer Reports on the impact of old cars on pollution levels. They found that 1.5% of cars were contributing 85% of the pollution. On a cost basis, they showed that it would be more cost effective for the government to buy these pollution mobiles and GIVE their owner a brand new clean car, than to subsidize hybrid cars, electric cars, etc. The problem is that the people who would buy a hybrid or electric car are already driving well maintained, clean running cars anyway. You get minimal improvement giving them incentives to switch. The people driving the horrible old beaters can’t afford a new hybrid even with a subsidy. If their car dies, they are going to go and buy another used, old beater and not maintain that one either. I believe this is still true. There is really very small number of cars putting out most of the pollution, CO2, etc. And also getting very low mileage. Replacing those gives us as a society the most bang for the buck.
I’ve worked in the German and international car industry all may professional life. All I can say is that the owner of a 9+ year old car is not your typical new car buyer. He usually buys used, and buys used again. Some of them will buy new, as they grow older and climb the career ladder. The person that buys new, then drives the car for 10 years and returns to the dealership to buy new again is a myth.
Numbers-wise, there are approximately 25 million cars on Germany’s roads that are 9 years and older. There is money for 600,000 to buy new. Sounds about right. My guess is, it will create between 150K and 300K additional sales, which would be huge. 300K wouold be a gain of 10 percent.
Tireguy is right, there is not much of a repo industry in Germany. The concept of someone taking you car away at night because you didn’t make payments is quite unheard of. There are more civilized ways to collect.
Someone who has a qualifying 9+ year old car that wants to buy a slightly used car should hook up with someone who is selling a slightly used car and swap cars. Then the person who had the slightly used car can cash in on the 9+ year old one and buy the new car they wanted all along. All-in-all, this just makes buying and selling used cars more complicated.
Again I would like to point out that my 25-year-old wagon gets 35mpg and is paid for. Where’s the bargain for me? There isn’t one. I could swap for a car payment and higher fuel bills? Gee, thanks.
SunnyvaleCA :
January 26th, 2009 at 2:39 pm
Someone who has a qualifying 9+ year old car that wants to buy a slightly used car should hook up with someone who is selling a slightly used car and swap cars. Then the person who had the slightly used car can cash in on the 9+ year old one and buy the new car they wanted all along. All-in-all, this just makes buying and selling used cars more complicated.
Sorry, that is wrong and does not work.
The requirement is that John Doe buys a new car (or so called “Jahreswagen”/year car) from a car dealer. The Jahreswagen needs to have been owned by a car dealership, no private person is eligible as seller. Further, who claims the credit has to show that he owned the clunker for more than 1 year.
So the order is: you buy the new car, then you scrap your old one, and then with certificates for both you claim the credit from the state.
It creates a bottom for the price of a beater. In the case of Germany almost €2.5K which is high
charly :
January 26th, 2009 at 6:03 pm
It creates a bottom for the price of a beater. In the case of Germany almost €2.5K which is high
To a certain degree that is correct. On the other hand, you receive the money only if you have owned the cluncker for more than one year. Unless you start engaging in some scheme, if you yourself do not buy the new car, it is problematic to use your old car for the contribution.
Taking Bertel’s estimation: he believes this may lead to an additional 0,3 m cars, compared to about 25 million Clunckers out there. Not really a number which should affect the prices of old cars.
Mikey and Bertel, I have never purchased a new car and I dont see that changing. I have 2 20 yr old vehicles that I paid 500$ for and made road worthy with some sweat and a lot of used parts. Along the way I bought maybe 300$ worth of new parts too.
Doesn’t Japan have a pretty good system in place that forces owners to ditch old clunkers for newer cars?
Of course Japan, being an island nation, doesn’t have the professional car theft problem Germany does. How often do newer (and hence nicer) cars get nicked off German streets and end up in Russia or the Middle East?
Bertel, I guess I am a myth. For twenty five years, I have bought new and kept them for about fifteen years each, one new one every 7-8years (two cars total).
@Paul: Yes you are! And we love you for that. If you have it serviced at the new car dealer through its life and not deserted to Pep Boys or Meinecke after the warranty expired, then you are the dream customer.
@everybody: I called some German dealers I know. They report a definitive uptick of traffic, caused by the clunker culling. High interest in low cost models, where the €2.5K makes a difference. Next to no action in the higher priced segments. Sales people report that a lot of customers leave empty handed, because they are shocked that the 2.5K covers only a part of the price and there still are payments left . But that’s salespeople, they always complain ….
Bertel, I avoid dealers like the plague, unless its warranty work. If it ain’t broke, don’t fix it, that’s my motto.