If this is a dead cat bounce, then it is a dead cat on steroids: German new car registrations jumped an unbelievable 40 percent in March. This according to data released by the Verband der Internationalen Kraftfahrzeughersteller (VDIK). Taking the Easter holidays in to account, which were in March in 2008, the gain still is a very impressive 20 percent, Automobilwoche [sub] writes. In the same month, sales in the USA continued to crater. The German sales blitzkrieg comes on the heels of a 22 percent jump in February.
The main reason for the incredible increase is the cash-4-clunkers Abwrackprämie. Buyers of a new car receive €2.5K if they retire their old one. Sellers of small cars profited most. French and Italian cars dominate this segment. In Germany, volume manufacturers Volkswagen, Ford, and even Opel profited. Even makers of luxury wheels see some improvement: Porsche reports an increase of 15 percent. Even BMW sees “first signs of an improvement.”
Perhaps those billions that were lent to GM and Chrysler and the billions more to come should have been used for a similar program in the U.S. instead.
That would have been helping those who actually buy cars though. Can’t do that!
I am surprised by the results.
How much are the results being altered by these factors?
1. German consumers aren’t indebted, and can afford to spend money on a car?
2. How long do Germans keep cars? I hear something about the TUV requirements. How difficult is it in Germany to keep an old car alive (as opposed to the US, where it is very easy).
3. Sales tax and other expenses.
We now have a sales tax credit in the US, which can be considerable. $1500 for a 25K car in a 6% state. Of course, it doesn’t apply to rich people, which are the only ones who can afford 30K+ cars right now.
The new US rule on car sales tax is a tax deduction, not a credit.
Trust me. There is nothing in the fundamentals of the economy that has improved. The economy has worsened. This is a mini bubble that the government has created and like the government created housing bubble it will burst.
Shocker, government subsidies distort markets! Who knew? What next, are you going to tell me confiscatory taxes inhibit the taxed activity? That’s so supply-side.
Alls I know is, I don’t want to be there when the Cash-4-Clunkers program ends… (assuming subsidized new cars don’t become a permanent middle class entitlement!)
Re: snabster
“1. German consumers aren’t indebted, and can afford to spend money on a car?”
Yes, there is indeed a difference. If the saving quote is to be considered as a parameter, the German saving rate is about 10%, as compared to the US, where in 2005 the rate was negative (c.f. http://www.boersennotizbuch.de/die-sparquote-in-deutschland-ein-ueberblick.php). So, there is more money available in Germany.
“2. How long do Germans keep cars? I hear something about the TUV requirements. How difficult is it in Germany to keep an old car alive (as opposed to the US, where it is very easy).”
The average is 8,1 years in Germany (2008 numbers).
The TÜV is no hurdle in keeping an old car. Any reasonably designed and well kept car will have no problem with TÜV.
I had several old cars (> 10 years) with no problems. I only sold them when I wanted a change.
How does this compare to the US, btw.? It seems that it is slightly higher (9 years) there, I have read somewhere.
“3. Sales tax and other expenses”
The German cash4clunker scheme is meant for private persons only, not for companies. As a private person, you cannot deduct VAT or anything from your taxable income, with the one exception that you can deduct 0,30 Euro per km for driving to and from the office. Yes, and if you have an accident when driving from or to the office you may deduct those accident-related costs, as well.
Other issues:
– The import car rate in Germany rose to 45%, thanks to the cash-for-clunkers program. So, this program is no incentive to buy German cars only.
– The program mostly helped manufacturers of small and cheap cars. Currently, there is a shortage on those cars, i.e., you will have to wait up to six month to get one.
– I expect a sharp drop in car sales after this program expires. Then, Mercedes, Audi and BMW sales might look better in comparison to the competition as they are now.
– Manufacturers of other durable consumer goods are not very happy about this program, as it directs all the consumer money to cars.
– The government can be happy as well, as they will not only get the standard 19% VAT tax on each car sale, but will also profit from business taxes. So, all in all, it is not so expensive, as compared, e.g., with those bailout programs where cash is simply burnt.
Is cash-for-clunkers just borrowing against future sales? Yes.
Is it a bad thing? Not really, if you assume future sales will be better than current ones. You’re averaging out the impact of the sales drop-off, stabilizing the market, keeping people employed, etc.
@herb.
Thanks for the thoughtful replies.
I realize the German saving rate is historically higher than the US one; that may have changed in the last six months as people bunker down. However, I was more asking about car financing than macro economics. How easy is it to get financing? How many are leases instead of outright sales. What percentage down for payment with car loans? My understanding is that it is harder to get a loan in Germany, people are used to putting 50% down when they do, and that is very different from the US.
Your view of the TUV is interesting. My GF is Spain has a problem with her car safety exam every few years, and it is far more rigorous than anything in the US. Dare I saw higher safety standards — if you took a spanish driving test you might agree. ;-)
The tax deduction issue (thanks for correction) is interesting in that the states collect the sales tax money, but it is feds granting it back at tax time.
My macro point is: used cars are easier to keep in the US, low-income people who own clunkers aren’t going to be able to afford new cars even with a clunker credit, and there is no emphasis in the us on moving small cars. I see huge value in killing off large SUV/pickups being used on single-person transport, but the clunker credit isn’t about that.
“Kraftfahrzeughersteller”
Gesundheit.
“How does this compare to the US, btw.? It seems that it is slightly higher (9 years) there, I have read somewhere”
The average in the USA is now a little over 9 years.
if you assume future sales will be better than current ones
Why would you assume that?
“I see huge value in killing off large SUV/pickups being used on single-person transport,”
I don’t, snabster. I see a small incremental value only. They don’t take up that much more room on the road, and they don’t use that much more fuel each day. Of course they are a helluva lot harder to see over from my RX7….
Keep in mind that (unlike in the US) German cars sales have been very weak for a number of years. There was a lot of pent-up demand which this bill released.
The cat pictured above was alive when the picture was taken.
The cat pictured above was alive when the picture was taken.
Well, obviously. It’s not in a box, and thusly the quantum state had already collapsed.
Perhaps those billions that were lent to GM and Chrysler and the billions more to come should have been used for a similar program in the U.S. instead.
That would have been helping those who actually buy cars though. Can’t do that!
that infact is not a bad idea. Kind of force GM to pull up their socks. As it is now GM may still dont give a F ing damn if the car will die after 50 ft away from the stealership.
And is their Who gives a F attitude that got themselves into the eyeball full of alligators.
@snabster:
Car financing & leasing:
Car financing isn’t such a problem in Germany. At least, if you have a job or a regular income. For self-employed people it may be a hassle, although. Banks hate freelancers. Banks also hate old people. So, freelancers over 60 need not apply. That’s why I hate banks.
But provided you meet their basic requirements, you have the same options as in the US.
– There are a lot of dealer offers, not only at local level (even Mercedes, Audi and BMW are offering something)
– There are consumer credits in a range between 5.95 to 10.9 % (c.f. http://biallo.boerse-online.de/tz/boerse-online/Kredit/Kreditrechner.php?nv=Teasertext_BialloKredit)
– There are leasing offers for private customers, as well, although I doubt that private leasing is a mass phenomenon in Germany. But Peugeot, for example, offers a so-called 0% leasing (I didn’t read the fine print, however) .
Provided you are flexible in your car selection, you can easily replace an old clunker with a new one. You are best off, when all you want is an A-to-B car w/o automatic transmission.
Keeping used cars:
Being poor (a.k.a. having low income) is a sad state. In such a situation, it’s most probably the best to have no car at all.
This would be feasible if you are living in an urban area in Europe. Don’t expect to get rich without a car, however. The money you save on cars will easily be sucked off there by paying higher rents, for using public transport and generally higher costs of living. The Bavarian police, for example, has difficulties to get policemen to work in Munich because of the high costs of living there.
So, normally we need a car, even if we are poor, because we need to go to work and do some shopping.
With new cars, the cash4clunker program worked fine, as – together with dealer incentives – you had been able to buy an almost new car for less than 7,000 Euro (e.g, a Hyundai Getz (not sold in the US, I presume), which is a decent little car that is now replaced by the Hyundai i20). This is a price region that normally was not in reach when you were looking for a new car (aside from the slave-built Dacias).
But the cost of buying a car (whether old or new) is just the best visible part in this game. You can start very cheap and this will be true for both the US and Europe. If you want to have a look at used car prices check http://www.mobile.de/home/index.html?lang=en). Depending on how poor you are, the running costs might be neck-breaking, as you not only have to pay car taxes, but also for insurance, gas, maintenance & repair.
And here it is where we have differences between the US and Germany/Europe, most notably with gas prices. Due to taxation, the gas prices here in Europe (depending on the country you live in) are at least twice of that you normally pay in the US.
This is probably the strongest incentive in Europe to drive small, fuel-efficient cars. But there are others:
– Driving a big car simply sucks here, when you consider the layout of streets (often going back to the times of the Roman Empire), parking places (to less, to little), etc. Aside from the Autobahn, i.e., there were you can meet nice people, it often is a pain to drive anything bigger than, e.g., a Golf.
– Car insurance also favors small, underpowered cars, although you will have to consider an extra premium for Diesel cars because such cars are more prone to theft. The difference in insurance costs between the entry-engine Golf and the GTI really is hefty.
If we take the above points into account and also consider the fact that the US does not suffer from ancient, inherited Roman street and road designs, if we also take into consideration that on average the number of miles to travel from A to B is higher in the US than in Europe, we might find it perfectly reasonable that there is a preference for bigger, comfortable cars in the US.
Aside from that, and regarding the low-income issue, there is an old Bavarian proverb:
“Besser reich und gesund, als arm und krank.” (Better be rich and healthy than poor and sick).
You simply have more options with such a setup. You could even afford a brand-new Prius (for your wife), and/or a Tesla for yourself.