Scrapping old cars boosts German sales

A government incentive scheme to scrap old cars has created a jump in sales in the German car market, providing a glimmer of hope for the mostly foreign mass-market producers but frustrating the country’s premium carmakers.

New registrations in Europe’s largest car market rose 21 per cent year on year to 278,000 cars in February, the highest level in the past decade.

“We expect new registrations to be higher in the first quarter as well,” Matthias Wissmann, president of VDA, the German car association, said.

Mr Wissmann’s optimism was underscored by the fact that German domestic car orders rose 63 per cent in February.

The scrap premium is part of the second €50bn ($63bn) German economic stimulus package.

It is a rare example of such a measure having an immediate effect on an industrial sector.

Carmakers such as Fiat, Renault and Opel have seen demand for small cars rise sharply and some have halted temporary redundancies as a result.

Volkswagen, Europe’s largest carmaker, hastily produced a further 40,000 units of its Polo model, which is due to be replaced by a new version this week. Usually, demand for an old version of a car drops to almost zero at the time of a model change.

The incentive scheme started in January and allows car owners to trade in cars that are at least nine years old for €2,500 if they buy a new or nearly new one.

Other European countries have come up with similar plans, but none created a similar sales growth pattern as lower sums were paid.

The government authority managing the scrap premiums said Tuesday it had received 157,000 applications. The scheme is capped at 600,000 applications or €1.5bn.

The premium was criticised by German luxury carmakers BMW and Daimler, which say that it is mainly foreign mass producers such as Dacia, Peugeot or Fiat that would benefit.

Norbert Reithofer, chief executive of BMW, said: “This opens the door to a distortion of competition. The more you get involved, the more you lever out free markets.”

Analysts warned of a mere frontloading of planned purchases.

“Purchasing power will probably be missing after the summer break,” Alexander Koch, senior analyst at UniCredit, said.

But he added that the effects on the economy were positive.

“The scrapping premium provides some absolutely necessary immediate support for the tarnished German economy,” he said.

But the scheme could not avert a sharp drop in sales for the export-driven German carmakers.

The number of cars exported from Germany more than halved to 202,000 units in February, the VDA said.

Source: The Financial Times