Across Europe, "cash for clunkers" refunds spur new car sales
- Published Tuesday, March 31, 2009, by the New York Times
In Europe, `Cash for Clunkers' Drives Sales
By Nelson D. Schwartz
BRATISLAVA, Slovakia -- The economy here may be in free fall, but anxiety about the future did not stop Vilo Hrivnak from driving his 12-year-old green hatchback to the junkyard a few days ago and promptly buying his first new car, a cappuccino-colored Skoda.
Like hundreds of thousands of car owners across Europe, Mr. Hrivnak was spurred to act by new government subsidies for drivers who junk their old jalopies -- in his case 2,000 euros, or $2,655 -- and trade up to a new model.
Slovakia is one of a nearly dozen European countries to unveil a so-called cash for clunkers plan in recent months, but the idea could soon get its biggest test yet in the United States, where President Obama endorsed a similar approach Monday to help beleaguered Detroit automakers.
The details and the size of the refund, typically 1,000 to 2,500 euros, vary from country to country and often reward the purchase of smaller, more fuel-efficient vehicles.
The plan has exceeded expectations. Car sales are now running at an annual rate of more than 13 million because of the subsidies, according to Stuart Pearson of Credit Suisse, well above the 11 million level where they started the year.
"It seems like an obvious thing to do in the U.S.," said Mr. Pearson, adding that the average American car has been on the road for roughly nine years. "Rather than just giving companies cash to burn, it does keep people employed and stimulates demand."
Mr. Pearson predicted that if Washington were to emulate the plan in Germany, where the age of the total national fleet is similar to that of the United States, auto sales might rise to 12 million cars. That is well below the 16 million sold in 2007 or even the 13.4 million sold in 2008, but far better than the current 9.5 million rate.
But making the plan work in the United States could prove trickier than in Europe.
Continental drivers already favor small cars, and the program plays to a segment of the market where European giants like Volkswagen, Fiat, Renault and Peugeot are dominant. In the United States, Japanese automakers may end up with most of the rewards, especially if the program is open to all manufacturers as in Europe.
Currently, proposed legislation in the House would favor American-made cars, while a Senate plan would reward environmentally friendly vehicles, regardless of where they are built. The plans in Congress call for rebates of $2,500 to $5,000, roughly in line with the 2,500 euro ($3,317) plan in Germany, which is costing Berlin about $2 billion.
France and Spain announced their initiatives late last year, with Europe's biggest economy, Germany, joining in January. Austria is set to begin Wednesday. In most cases, the refund comes in the form of a discount on the sticker price.
Even in Germany, where brands like BMW and Mercedes command the kind of loyalty reserved for sports teams elsewhere, the local subsidiaries of Ford and General Motors have turned out to be big beneficiaries. Sales of G.M.'s Opel Corsa have tripled in Germany, leading workers in Germany and Spain to return to full production schedules.
That does not mean the incentives will be enough to prevent G.M. and Chrysler from sliding into bankruptcy. Detroit remains more dependent than its foreign competitors on higher-priced, bigger offerings like S.U.V.'s and light trucks, which carry far higher profit margins than small cars.
In Germany, more expensive brands have barely benefited from the incentive plan. German car sales jumped 21.5 percent in February, but mass market manufacturers recorded a 37 percent surge, while sales of premium cars fell 19 percent.
Still, when figures for March car sales are announced Wednesday in France and Italy, industry experts predict the subsidies will produce significant gains.
In Italy, which began its program on Feb. 6, drivers can receive a 1,500 euro discount if they trade in a car that is least 10 years old, with incentives ranging up to 5,000 euros if they buy a vehicle powered by electricity, natural gas or hydrogen.
At Fiat, conventional subcompact models like the Fiat Punto are enjoying a strong sales increase. After running on a reduced schedule from October to February, the Fiat plant in Melfi, in southern Italy, is running at full capacity again, churning out the Punto.
In Germany, Fiat sales overall have jumped from 12,000 cars a month to 14,000 a month since February.
In France, 30 percent to 40 percent of new car sales are coming in as a result of the scrapping deal, according to Francois Roudier, a spokesman for the French Auto Manufacturers trade association. Overall sales are still running about 6 percent below last year's rate, but without the bonus for customers, sales would be off 10 percent to 15 percent.
A similar incentive program operated in France from 1994 to 1996, Mr. Roudier said. While that plan produced a comparable sales bump initially, it was followed by a severe drop in 1997 and 1998. The French government, he said, is now trying to figure out how to prevent a repeat plunge.
"It has a positive impact, but the question is if they're not renewed, does the market then sag again?" said Garel Rhys, director of the Center for Automotive Industry Research at Cardiff University in Wales.
Along with helping the industry, supporters say the plan will remove hundreds of thousands of pollution-spewing clunkers from the road, while lifting safety standards overall.
The old Skoda that Mr. Hrivnak junked in Slovakia was not in such bad shape. He said that when he took it to the junkyard, both he and his wife, Maria, grew misty-eyed as they handed over the keys.
But Mr. Hrivnak, a 33-year-old editor at Slovak public television, said he felt better driving a new car with airbags, especially when his 3-year-old son was along for the ride.
"When somebody gives you 2,000 euro, it's very useful," he said. "I had thought about buying a new car for a year."
Maïa de la Baume contributed reporting from Paris.