European carmakers are hurting. They hurt so much, they ask for government-prescribed painkillers. Renault’s COO Carlos Tavares wants a return of cash for clunkers. Credit rating agency Fitch warns there would be nasty after-effects.
“What I would like to see is support for the European and French auto markets,” Tavares told Reuters. Massive cash-for-clunkers programs were a shot in the arm of Europe’s carmakers in the critical years of 2008 and 2009. Tavares wants a re-run. Failing that, he would welcome “any other support measure that boosts demand.”
Europe’s carmakers are hurting to the tune of a nearly 9 percent drop of sales in the first five months of 2012. Some companies hurt more than others. Tavares’ Renault group is in the pangs of a 13 percent drop. Cross-town rival and GM alliance partner PSA suffers from a withdrawal of 19.5 percent of sales through May. Further south, Fiat is looking at a 12.6 percent drop.
Fiat’s Marchionne had lobbied for government support for a painless elimination of overcapacity. This plan has been shot down by an elsewhere occupied Brussels. EU bureaucrats could argue that there was no consensus: German carmakers Volkswagen, BMW and Daimler were openly against the communal slim-fest, and privately argued that survival of the fittest would be a better therapy.
While there most likely will be little hostility against a remake of the Abwrackprämie (as cash for clunkers was known in Germany) from Germany’s auto giants, opposition comes from a surprising camp: Fitch, the rating agency that normally assesses the likelihood of default. In a statement, Fitch says:
“Scrappage schemes give buyers a discount on a new car when they scrap an old one, having an immediate positive effect on sales. However, these schemes have little to no effect on creating new sales. Instead, they encourage buyers to bring forward purchases they would have made later, creating a sudden drop in sales, revenue and profitability when the incentives stop.
In addition, these fixed incentives distort the market by favouring sales of cheaper, lower-margin cars as customers typically seek to maximise the effect of the subsidy.”
The last statement is true. Renault’s Logan was amongst Germany’s best-selling cars during the Abwrackprämie. However, I did not hear anybody complain about sales of lower margin cars.
The first statement is patent nonsense. Nearly all Abwrackprämie sales were new sales, due to the simple fact that one had to retire a car 9 years or older. Owners of these cars usually never buy new, they buy used. Dealers complained (they always complain) that their showrooms were mobbed by customers they had never seen before and likely would never see again. Powered by the Abwrackprämie, German new car sales were up 23 percent in 2009, a year when U.S. car sales plummeted by 21 percent. Germans usually buy 3 million new cars per year. In 2009, it was 3.8 million cars, nearly all incremental sales. In 2010, with cash for clunkers over, German car sales were back to 2.9 million.
Bailing out auto makers on the backs of the poor borders on immoral. The US cash for clunkers program was a disaster to those who shop in the used car market. I have no problem with the government providing a subsidy if that’s what they want to do, but to subsidize the new vehicle and then destroy the old one, when often times, the old vehicle is still roadworthy, is the issue that I have with these types of programs.
I totally agree. What a waste of energy burned up to make those cars thrown away, not to mention what it does to people who are limited to the low price end of the market. That’s not capitalism, that’s socialism.
Bailing out the powerful, aka the politically visible and connected, at the expense of those not so fortunate, is always waaaay past what ought to be criminal. Of course, in lynchmobocracies at least, those influential enough to swing bailouts their way, are also influential enough to write the criminal code.
“The US cash for clunkers program was a disaster to those who shop in the used car market.”
— That’s a myth.
C4C really had no effect on the high prices for the used car market (which was the crash in new car sales/leases which dried up the market of used cars down the road).
Used car sales have started to come down now as there are more cars bought/leased 2-3 years ago coming onto the market.
Also, while I had my issues w/ the C4C program, it really saved automakers like Ford; Ford was burning thru what was left of its cash reserve and C4C injected some life into the US automarket which helped turn domestic auto sales around.
http://mediaroom.kbb.com/index.php?s=43&item=272
It had an effect to raise used truck/SUV prices as much as 16% in the 6 months that followed.
That was a short-term effect that dissipated when gas prices rose (remember whn truck/large SUV prices dropped like a rock?).
When people were claiming about high used car prices, it was for more fuel efficient cars, which weren’t impacted by C4C.
this is why I don’t feed stray animals…
Gimme gimme gimme!!!! The new plague. I’ve worked in tech forever and have never seen this level of begging/crying for help that the auto companies pull..
Many a tech company have folded and been absorbed due to various economic conditions. Why does the auto industry feel it immune to this?
> Many a tech company have folded and been absorbed due to various
> economic conditions. Why does the auto industry feel it immune to
> this?
Car is the object of culture. Tech technicalities are not.
Only those working in the domain read dedicated tech magazines/websites. Car magazines/websites are read mostly by those who don’t work in car business.
Car companies know this advantage and make use of it (as of any other business advantage).
http://mediaroom.kbb.com/index.php?s=43&item=272
Hey, whatever it takes to boost Ampera sales.
This won’t benefit all car makers. JLR are already running close to capacity and would actually be at capacity if they could source more engines from Ford. With that in mind JLR would be wise to ask the British government not to back a cash for clunkers scheme. This way if Ford sales drop JLR are more likely to get engines. Also the more stress a company like JLR can put on other car makers the more they can sweat their supply chain for discounts.
Amazes me at the timing of the JLR sale, Ford could have held onto it and actually turned a profit if they had waited a bit. Volvo on the other hand needed to go IMO.
I didn’t see the data fgrom Europe, but the US C4C was documented right here at TTAC as being mainly a purchase pullahead mechanism. And reducing the used car fleet and incrasing prices thusly is really a transfer of wealth from the poor to the car companies.
Renault’s CEO is Carlos Ghosn. Carlos Tavares, I’m sure, is the COO.
With hindsight, here in Europe the whole cash for clunkers schemes did more bad than good for the automakers (and the public), in the mid and long term. For them it was a sedative, a drug which will now make transition to reality even more difficult.
It simply created out of the blue a market portion which never existed before – like the author correctly pointed out, the vast majority of the buyers were only used car clients before. These won’t buy any new cars – at least not for a decade, if ever.
Thus the program simply put off for a few years the issues of overcapacity and overproduction which hit hard now. During these 4 years, the companies did nothing to mitigate this.
The other perverse effect was that Renault, Dacia, Fiat, etc. were happy to churn out massive quantities of cheap, obsolete technology cars for years with no attempt to enhance fuel economy, safety or build quality. With “cash for clunkers” gone, this strategy will bite them in the back quite badly.
Here in Romania (where the Logan is built) the factory had to stop work for 7 days due to the huge stocks they accumulated. While Logan was a decent car when launched back in 2004, now it’s hopelessly obsolete, and the replacement model is coming only in autumn…it might be too late.
In Germany last summer, I’d say it was a roaring success. Just about every car was new. The few “older” cars I saw were clearly classics or someone’s toy.
I’d say all those purchases were already pulled ahead. Another C4C in Germany would be retiring two year old cars.
A roaring success for who/what end goal?
Folks, please read the story again before regurgitating the pull-forward story.
If only 9 year or older cars can be handed in, NEW cars will be bought instead of the OLD cars that this target group usually buys.
In Germany, 2 million cars received a subsidy, totaling 5 billion EUR. The subsidy was roughly equivalent to the VAT. The VAT was effectively handed back. It would not have been collected without the program.
The averaged age of the clunker handed in was 14.4 years. There are 58 million cars on Germany’s streets, around 29 million of them 9 years and older. The program barely affected the average age.
Would the European carmakers cutting their prices boost demand?
Union trash always want some free tax money. Stay away from union products.
Better not buy any imports then because most if not all are made by unions.
Do they have auto unions in Japan?
Google is your friend:
http://www.jaw.or.jp/e/