Tuesday, June 16, 2009

Germany's Cash For Clunkers


Germany launched their Cash for Clunkers program earlier in the year. It has been a major success....registrations of new cars are up 40% in May over last year at the same time. Car dealers are excited that there is so much show room traffic....although the German manufacturers are less excited.

The German government appears to be pleased with the response to the program. Over one million prospective new car buyers have applied for the $3500 willing to trade in a car over 9 years old. The German government has increased the budget from $2.1 billion to $7 billion.

Today's world is very different than the past, multinational corporations are all over the globe. Manufacturing is done in a number of different countries. One of the problems that I have had with all the government bailouts.....is who are we bailing out! It turns out that we have bailed U.S. based companies but a lot of the money is paying obligations to other governments, foreign corporations, foreign nationals. But, at the same time it is our money.....so that is the complexity for governments today.

The Cash for Clunkers program apparently has substantial leakage. Leakage is an economic term....translated it means that the the governments financial efforts to stimulate demand benefits auto manufacturers in other countries. Apparently, only 24% of the money spend into the program has gone to German manufacturers...primarily Volkswagen and Opel.

Germans are apparently going for smaller less expensive cars...the balance of 76% has been spent on Hyundai's, Renault's, Skoda's and other foreign brands. An example of a Skoda Fabia is shown above.

There is an interesting story about a beneficiary of the German Cash for Clunkers program. The company is Skoda...which is a Czechoslovakian company. Six months ago they cut back a number of workers, reduced the work week to four days ...when the German Cash For Clunkers program was announced they rehired some of the the laidoff staff and are working five day work weeks with three full shifts.

SUMMARY
A program like the Cash for Clunkers can be an advantageous program if it is implemented properly. Congress should learn from the mistakes of other countries and not repeat them.
Wages in Eastern Europe are much lower than wages in the rest of Europe...therefore the selling price of the Skoda autos is much cheaper. In difficult economic times people will by the cheapest product available.
If a country wants to help the automobile companies in that country..... they have to limit the incentives to cars built in that country.....without regard to manufacturer.
To open the coffers to imports does not make any sense to me! The German plan will mainly help out the dealers especially the lower priced vehicles.....but does not have the same impact on manufacturers.

12 comments:

  1. Hi Pete .. history will tell .. but I'm dubious about all the bail outs etc - and as you say our money is going after our money that's gone somewhere else ..

    I'll drive a Rolls .. if that's all the manufacturing we've got left over here!!

    Go well ... and thanks for the update on the Germans and their cash for scrap ..

    Hilary Melton-Butcher
    Positive Letters

    ReplyDelete
  2. Hi Hilary,

    Yes, I am dubious about the Cash for Clunkers program. I have been very dubious about the financial bailouts. The auto industry here needed some help....but also needed fresh new people to invigorate the companies.

    I thought the Bentley was your ride! Thanks for the comment!

    Pete Baca
    The Car Enthusiast Online

    ReplyDelete
  3. Hi Peter

    What a great idea, I agree with you. We sure can use something like this here in the USA.
    Thanks for sharing, and I learn something new today :-)
    Giovanna Garcia
    Imperfect Action is Better than No Action

    ReplyDelete
  4. Hi Giovanna,

    We could use a boost in new auto sales...thta would help out the manufacturers more than giving them bail outs.

    If the program was designed properly it would work! Thank you for your comment!

    Pete Baca
    The Car Enthusiast Online

    ReplyDelete
  5. Hi Peter,

    Do agree with you that this would be a great idea if implemented properly in the U.S. It would definitely increase new auto sales and decrease the amount of bail outs going on.

    Thanks for the update. Great post!

    Many Blessings....

    Roxanne and Hugo
    Believe Achieve

    ReplyDelete
  6. Hello Roxanne and Hugo,

    They just implemented the Cash for Clunkers program here in the U.S. I will do a supplemental post to cover the changes.

    I am not optomistic that the new program that they crafted will work well!

    Thanks for visiting my blog and commenting!

    Pete Baca
    The Car Enthusiast Online

    ReplyDelete
  7. Peter, they have more then likely patterned the program after the German plan the way that it is. That means that it will have the same effect that it had in Germany. That will not benefit the companies that need it the most, that we now have such a big stake in-so we loose out as well. Is that not how they do things in Washington these days. Thank you for keeping us up to date on all of these things.
    Dan and Deanna "Marketing Unscrambled"

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  8. Hi Dan & Deanna,

    Your correct...the Cash for Clunkers program here resembles Germany's. The whole issue being discussed is that protectionism rose it's head during the depression. Supposedly, that is what made the depression much worse than it would have been otherwise.

    That maybe why Germany did not limit it's program to German produced automobiles. The American plan was unlimited to manufacturer so they are looking not to start a trade war during this difficult financial time.

    Thanks for your comment!

    Pete Baca
    The Car Enthusiast Online

    ReplyDelete
  9. Sure... to destroy value is really a good thing...

    ReplyDelete
  10. Hello Anonymous,

    I am not a fan of the bailouts but I have reported the results. Today, the Germans reported that they economy was up by .3 in the
    last quarter.

    It appears that the German and the French economies increased in the second quarter.

    So maybe these programs are helping! Let us see what happens when all the programs end.

    Thanks for your comment!

    Pete Baca
    The Car Enthusiast Online

    ReplyDelete
  11. i like this one from Germany and this is good to drive and feel it fully and taste the real driving of car.
    thanks
    Rebuilt Engine

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