Talking about a stimulus bill: Germany has introduced a „wrecking premium“ to induce auto sales – I was skeptical, I have to admit, but it works!
Here is how it functions: As of February 1, 2009, whoever submits his car to be wrecked upon buying a new car, receives €2,500 from the German Government which has made €1.5 billion available for this purpose – that would make 600,000 buyers of new cars. The run on this turned about to be enormous, so that shortly, the full contingent will be signed up, only limited by the availability of cars. Almost all cars bought under this program are small cars, however, with the VW Golf being the #1 beneficiary, and others, such as Ford Focus and Opel Astra following suit. The result: Factories which were under „short work“ (work reduction) before, not only had to cancel the short work, but also introduce extra shifts.
New car registrations increased in February by 21.5 % relative to February 2008, and 46% over January 2009. At the same time, the order intake increased by 63% in February, and reached the highest level since 2001.
The losers are the companies with premium cars such as Mercedes and BMW which a struggling with a sales reduction of 28%, while Volkswagen with the main brands VW, Audi and Skoda increased their profit in 2008, and have 5 of the 10 most sold car types in February.
But there is also a strange (or should I say funny) result related to this premium: Everything done by impacting the market has an involuntary side effect. Old cars, disposed of in Germany and replaced by newer cars, are normally shipped to Africa and used there for a large number of years. There is a whole business, located in Hamburg, based on the shipping of old cars to Cameroon, Angola and other African countries in that region. Now, with this new situation, the destruction of these old cars has basically dried that business up.
So, what do you think? Could this work here? Would we want to do this? Just a thought...Mr. Z
z
20 comments:
The law of unintended consequences always comes back to bite.
Mr.Z,
This is genius. In America, the company that was selling cars would go out of business, while there would be an enormous amount of businesses lining up the crush cars and sell the scrap. That's entrepreneurial spirit. That's capitalism, that's America. IT is a hard decision between this plan and saving a mouse in wetlands near SF. Good post.
do they come with a bumper to bumper warranty too mr. z?
I lived in Germany for a couple of years. They have a way of finding solutions (and starting world wars . . . but that's another story)
Khaki, we're taught they started WWI, too...we should all look into that real story.
Pat, of the new cars or the wrecked ones? :-)
L&O, I'm not sure I get you here....??
RightKlik.....yup
Well, if it actually stimulates as opposed to make certain people look good, then i'm all for it.
Way back when, car dealers here in the states used to offer a similar "stimulus," though it wasn't funded by the government but by the car dealers.
One got x number of dollars for every trade in, and people turned in whatever they could find to get the discount on their new car. In fact, one car dealer here in Northern Virginia build his entire business by offering these extra-value trade ins. That particular car dealer had a long waiting list as the lot was quite empty most of the time. The cars moved that fast!
Sadly, that dealer closed last year.
this would not work here, first if the auto makers here keep depending on the Obama to pump money in their pockets they will soon have a guide line of what type of car to build, remember the movement 15 years ago, not big cars, no suv, no big trucks, everyone wanted hybrid cars on the market. The same people are now running washington, they will try to enforce that plan. Second you have to factor in BIG CORPORATION, Obama and the Libs, want to end BIG CORPORATIONS, if this happen the auto makers will make too much money again, and the CEO will have to face Obama Pay Rates. Third you have look at the oil issue, Oil Runs America if you have these cars that dont burn gas, no oil, you think its bad now, what till the gas and oil prices go up. Obama and his team know that you have to have oil moving, remember this, when the oil prices went down and they jumped down all the executives in the Oil Industries, the economy followed.
I am commenting here as it is the only post my Google reader can pull up. Hope you can get it fixed!
very cute...that will really help!
Z,
I was genuinely backing the plan. I wanted to point out that businesses open and close all the time in relation to market demands. One door closes others open to fit the new industry. Americans are very good at adjusting their ability to make money. The crack at the end was meant to be a smart aleck and compare real government stimulus and the jazz that BO is pumping out.
So in the middle of an economic doldrum, we're suggesting that we can create wealth by destroying wealth? Such ideas are certainly not new now, and I don't think they were new when FDR was touting them as part of the New Deal.
If the suggestion is that the government (tax payers) should subsidize the destruction of cars, I say this is the antithesis of the free market. I call Ducky to the stand in my defense. (If he doesn't agree with me that it's insane, he will at least agree that it is Keynsian.)
If I totally misunderstood this or failed to grasp the satire, I quote Gilda Radner: Nevermind.
Kind of Confused,
Tio Bowser
It sure worked...stimulated..they didn't destroy cars in good shape. they have different rules about cars on their streets...you can't drive heaps,...so, anybody with an "almost ready for the graveyard" car took advantage of it...boosted sales of tons of things...and actually STIMULATED.
What a concept!!
This sounds like the broken window fallacy described by Henry Hazlitt here:
http://freedomkeys.com/window.htm
I have no more desire to pay to have someone's car to be destroyed than for his house mortgage. Why stop at cars? How 'bout government subsidized houses? Energy-efficient appliances? Education? Health-care?
If the car-owner doesn't value the new car enough to pay full price, why would tax-payers be asked to make up the difference? If he doesn't buy a new car, he buys something else he values more. If he decides he'd rather put the money in the bank and save it, he is providing capital for other would-be investors.
In conclusion, this is one step toward socialism that Tio Bowser doesn't care to take.
Tio Bowser
Tio, it's better than OUR PLANS here, that's all.
Nobody's advocating it here, but it WORKED, it's a different situation in Germany, and nobody bailed out a whole individual company....
it helped people get a new car and they had the choice of what new car to buy. Good for them, good for the car companies, good for everybody who supplies to those companies, and everybody was happy.
One problem, Mr. Hopenchange will make sure that we only buy the cars that the liberals deem proper for the USA. So no I don't think it's a good idea. When I buy my next car, I want to decide what it is, not some id10t from DC.
Just to clarify several issues mentioned in some comments:
1. In 1 1/2 months, 420,000 cars got sold under this program - a big boost. It works because, unlike the Obama Non-Stimulus, it is targeted, and people can't just take the money and run (or pay the credit card.... you get the picture). Objective met, it works.
2. Nobody tells the buyer which car to buy. Small, large, domestic, foreign. Most people are buying smaller cars, like the VW Golf, but Audi and Mercedes have benefited, too, and so did Renault and Fiat.
3. Unlike the US, Germany has strict laws relative to the safety of cars on the streets, and a serious inspection every two years. It is my estimate that 30% of the cars in the US would not pass. Scrapping of these cars is a good thing - it recycles metal back into manufacturing, something which is very much needed. So, this is good under this aspect, too.
4. The cars which were previously shipped to Africa were junk and not allowed anymore on German streets.
Bottom line: This works for Germany. The point was not whether the exact same thing would work in the U.S. - it was rather: a stimulus program works if it is clearly targeted. Instead of spreading willy-nilly money into bee-hives etc., provide people with a gift card valid at a certain mall (so they can't use the money for other purposes such as those preferred by the people in the aftermath of Katrina).
Mr.Z
it's an interesting concept, but as z pointed out it is a different economy and place. however, a bailout is a bailout, mr. z's additional comments aside...
also, z, people here are taught that germany started wwi - really? this is just wrong.
Heidianne..absolutely. Most Americans think German caused WW I...that's what we're taught. Go figure.
I guess it's an easier 'explain' but wrong.
I can see this for Germany but I would prefer private enterprise ideas for America. It would be far better then the stimulus plan passed by out great leaders. I would take this approach over what we got. It would creat jobs and get the economy moving.
I remember buying my first new car. The dealer had a deal- push, pull, drag it in and get $500 off. If you drive it in you get $1000. I drove mine in. They towed it to the back and said I was a brave man. I got my new car.
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