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.