Here’s a surprise: American cars hold their value much better than other major markets, including Japan and Europe. Cost of ownership is the culprit. In the US, owning a car generates relatively little in the way of year-to-year expenses. Registration is usually about $30. Inspections are infrequent and rarely costly. While the repairs required to keep a “beater” on the road can reach four figures, they rarely exceed the value of the vehicle itself. As a result, it’s unusual to see a used vehicle in America (even “heaps”) listed for sale under $1k. Also as a result, the cash-for-clunkers proposals, as envisioned, are a horrible idea.

In an effort to boost sales, the German government has been running a “cash for clunkers” program. The government is offering 2,500 Euros for any eligible old car traded in towards a new car purchase. After some initial cheering, the program has been leaning toward scandal land. The reason for this nexus: gaps.

Gap number one: used car values. Overseas, licensing and stringent test regimes make the cost of auto parts a far more daunting proposition than it is in The Land of the Free. Tax laws favoring company/fleet purchases create [even] dramatic depreciation for mass market models. These factors mean that the market value of a “tradable” used car is much less than it’s “government” trade-in value.

The other gap—and the source of many of the “issues” surrounding the cash-for-clunkers program—lies between a car’s “inflated” trade-in value and the cost of a new car.

At best, the money garnered from the government for a clunker represents about a 25 percent down payment on a new car. That’s at the low end. For a more middle-market car, the clunker check accounts for less than 10 percent of the cleaner, greener machine’s purchase price. On top of that, the sort of person who would be buying a €10K car is the one least likely to get financing to close the “gap”.

The sharp end solution to this gap is simple: People who can afford new cars will buy (from a private owner) a “junker” to trade. The junker’s former owner will take a fee (maybe 1000 Euros) and use the money to buy a non-tradeable old car. Hopefully a better one, but not necessarily.

Despite/because of these economics, it seems that everyone wins (and the old cars get taken out of circulation). In practice, no.

The biggest problem with Germany’s cash-for-clunkers program: it takes something that is normally not very valuable (a German jalopy) and increase its value several-fold by attaching a couple of documents. Throw in the fact that the money “pool” supporting the program is “first come, first served,” and you get fraud on an impressively large scale.

TTAC’s Bertel Schmitt has been connecting the dots between the environmentalists’ and the mob’s green dreams. Apparently some of the trade-ins are doing it the Chicago way (early and often), and aren’t even getting scrapped. This makes a mess of the real purpose of the program (culling clunkers), while doing nothing to increase sales (the spoonful of sugar to make the green stuff go down easier).

It’s a stark warning to Americans contemplating the wisdom of the whole cash-for-clunkers concept. But is the devil in the details? Could CforC be done “properly”?

First, you’d need to make the scrap credit what it is: a simple payment above salvage value to take a heap off the road. Second, you need to make the payment lower (say $1,500 or even $1,000). Third, you need to extend it to ALL eligible vehicles and run it through salvage yards (therefore only one set of books to check).

In effect, the goal would be to get “heap” drivers into a slightly newer, slightly nicer “heap.”

Aside from aesthetics and a marginal pollution reduction, the greatest benefit would be to reduce the total vehicle population on the road. This will eventually help the new car market but not for a few years and not for the reason you’d think.

While new vehicle sales had been running high until last year, the “scrap rate” has held steady at about 12.5 million a year for the last decade. Sales have far exceeded that rate; that is one reason the US has 250 million cars for 200 million licensed drivers.

A targeted cull would aim to increase the scrap rate, to 15 million annually. Make no mistake, doing it right would not be cheap, I reckon $5b dollars a year (3.5 million times $1,500) ought to do it.

Reducing the absolute number of cars would help heal the damage years of “fire sales” have had on used car prices. Getting used car prices back near “normal” would help sales down the road. But would it be worth the cost? In Bailout Nation, cost owns you.

An overview of what happened in other parts of the world while you were in bed. TTAC provides round-the-clock coverage of everything that has wheels. Or has its wheels coming off. WAS is being filed from Tokyo this week.

India‘s car sales up: Just like neighbor China, India reports rising cars sales for January. Most car companies registered positive sales despite the withdrawal of price rebate schemes, India’s Economic Times reports. Tata Motors continued its negative run, with its passenger vehicle sales declining by 9 percent.

Toyota losses spreading: Toyota’s parts arm Denso and four other Toyota Motor Corp. affiliates are expected to suffer group net losses for the year ending March 31 as the automaker’s drastic output reductions battered businesses along the supply chain, the Nikkei [sub] writes.

Hitachi lowers volume of auto biz: Hitachi considers cutting in half the number of 85 marketing and production sites handling automobile-related equipment, the Nikkei [sub] says. Hitachi group company Clarion has already decided to close a factory in Hitachinaka around the end of 2010 and keep just one domestic factory open. In the US, where Hitachi operates Hitachi Automotive Products (USA) Inc. in the state of Kentucky and three other production bases, two locations may be closed.

Mazda sees red: Mazda expects its first loss in eight years for this fiscal year due to damage sustained from a strong yen and a sharp downturn in consumer sentiment, the Nikkei [sub] reports. The Hiroshima-based company now expects a net loss of ¥13 billion for the current fiscal year through March, compared with its previous forecast for a ¥50 billion profit.

Ford moving to China: Ford Motor Company’s Asia Pacific and Africa region headquarters, will be moving from Bangkok to China, Gasgoo reports. Bangkok will continue to serve as Ford’s ASEAN regional headquarters. In 2004, Volkswagen AG and General Motors relocated their Asia Pacific regional headquarters to China.

Small getting bigger and bigger: Underscoring China’s move from big to small, SAIC-GM-Wuling, a Chinese venture of GM and leading manufacturer of mini-trucks and mini-vans in China, reported all-time high sales of 75,168 units in January, Gasgoo writes. The record sales were largely on the strength of Wuling Sunshine, which remained the best-selling model and saw its sales volume hit 1.4 million units by the end of January 2008.

Not a good start for Deutschland: Germans bought 14.2 percent fewer cars in January 09  than in January 08.  Saab (-60.7 percent), Chrysler (-53 percent), Land Rover (-51.9 percent), Nissan (-51.1 percent), Jaguar (-31 percent), Skoda (-30.7 percent), Mercedes (-30 percent), Porsche (-24.7 percent) and Opel (-22.7 percent) were the big January losers in Germany’s car market, Automobilwoche [sub] reports.  Ford sold 25.9 percent more. Smaller importers such as Hyundai (+50.8 percent), Mazda (+27.2 percent) and Lancia (+13.7 percent) gained. The trend goes from big to small.

Out with a Bangle: After 17 years with BMW, U.S.-born Christopher Bangle resigns as chief designer of the BMW Group. The Bavarians go Dutch with Adrian van Hooydon. According to Reuters, Chris Bangle is “one of the most well-known and controversial people in the auto industry.” Bangle was the object of multiple online petitions calling for his sacking. After his 2002 redesign of the 7 Series sedan, the vehicle was voted one of the 50 worst cars of all times by Time magazine, along with such other infamous models as the 2001 Pontiac Aztek and the 1998 Fiat Multipla.

For most in the German auto business, the Cash-for-Clunkers scheme (€2.5K if you scrap your old and buy a new one) is the savior that rescues Deutschland from eternal CO2-related damnation. Not to mention the fact that dealers are reporting long lines in showrooms. The hottest topic: the money to fund the Abwrackprämie (“wrecking award”) will be gone soon. Germany’s elected representatives only allocated €1.5b for the program—enough for 600K cars or one fifth or Germany’s yearly run rate. If that money gets exhausted anytime soon, turning water into wine will be relegated to cheap stunt status. The media ignores this eventuality, and beats the public into a frenzy. Act fast! Im Windhundverfahren (“greyhound method” a.k.a. first-come-first-serve principle)!

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Brussels just ratcheted up the thumbscrews they placed on Berlin: “Either drop that VW-Gesetz now, or we’ll see you in Europe’s High Court. You’ve go two months.” Automobilwoche (sub) has the story in German. In case you don’t know: The VW-Gesetz (VW-law) was written to give the state of Lower Saxony veto power. Lower Saxony holds 20.1 percent of Volkswagen. According to German law, a minority shareholder must have 25 percent to exercise veto power. Lower Saxony didn’t want to spend the extra money for the extra shares. A law was passed instead. For a long time, this law was seen as a weapon to ward off foreign raiders and other riff-raff: Who wants to take over a company they can’t boss around? Now, the law bothers two parties:

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