Fearing Clunker Hangover, Europeans Plead for Renewed Scrappage Plans
September 16, 2009

Hangovers are hell, and in Europe as in the U.S., automakers fear with Cash for Clunkers programs ended or winding down, they are in for a big one.
 
In Europe, automakers are pushing their governments to continue Cash for Clunkers-like plans - known as scrappage programs -- for fear the bottom will fall out of car sales.
 
In the U.S., automakers aren't pressing for Cash for Clunkers 2.0, but they are worried about sales this month and through year-end.

U.S.: Facing Up to the Inevitable
 
The now-ended U.S. program, officially known as the Car Allowance Rebate System (CARS), did what it was intended in that it boosted August sales to the highest levels of the year. But now automakers, unsure of how much buy-ahead Cash for Clunkers stole, could face the lowest annualized sales rate of the year when they post September sales.
 
Edmunds.com forecasts a Seasonally Adjusted Annual Rate (SAAR) of sales in September at 8.8 million vehicles, the lowest level this year. The SAAR in August was 14.1 million.
 
Germany: Poster Child Set for Severe Hangover
 
Germany, which ended its scrappage program Sept. 2, now braces for a potentially severe hangover that has some analysts predicting a year-over-year sales decline of 60 percent or more in the final four months of 2009.
 
Germany recorded first-half auto sales per capita of 2.5 percent in 2009, meaning 25 of every 1,000 Germans purchase a new vehicle between January and July 2009. This is a half percentage point gain year-over-year, making Germany the only nation among Europe's major countries or the USA to report any growth at all.
 
Germany's scrappage incentive offered new or one-year-old-used vehicle buyers $3,650 when trading in a nine-year-old vehicle. The $7.1 billion program subsidized 2 million new vehicle transactions over eight months from when it began in mid January. New auto sales grew 20 to 40 percent each month, positioning Germany as the poster child of scrappage programs for crippled economies globally.
 
German new-vehicle retail sales reached 2.67 million units through August this year, in an economy that typically supports 3.33 million sales annually. An average of 165,000 monthly unit sales will ensure German auto sales finish 2009 at 3.33 million sales, leaving analysts wondering how low sales will actually dip without a scrappage subsidy. Monthly sales have dipped below 200,000 units five times since 1990.
 
Though renewing Germany's scrappage program has supporters, including Ford, it has its opponents as well, namely BMW, which has benefited minimally from the scrappage scheme. And most experts doubt it will get a second act.
 
U.K.: Burning through its Budget
 
The U.K. has burned through about two-thirds of its so-called "bangers for cash" program. British consumers have purchased nearly 200,000 vehicles under a scrappage program similar to Germany's that offers $3,340 for trading in a vehicle at least 10 years old.
 
The government and automakers split the cost of the program that started last May, which is budgeted for a total of 300,000 sales. The program is set to expire at the end of February 2010 but funds are expected to run out sooner. Expiration of the scrappage program will roughly coincide with a VAT tax increase of 2.5 percentage points to 17.5 percent, starting in 2010, which will be a double whammy to auto sales. VAT tax is calculated before scrappage incentive discounts are applied.
 
France: Plan Extension
 
France will extend its scrappage program into next year and phase it out gradually.
 
First-half auto sales per capita remained flat year-over-year, though government officials still hailed it as a success as sales tumbled in neighboring countries. French lawmakers want to gradually phase-out the $1,460 scrappage subsidy, hopefully avoiding a major shock to auto sales.
 
"As successful as it has been...we need to be successful in pulling out," said France's Economy Minister Christine Lagarde.
 
France became the first nation to offer consumers a scrappage subsidy when the program launched in December 2008. Industry sales have benefited with modest growth of 2 to 5 percent in the past few months, aided also by an environmental bonus program.
 
Meantime, other countries are contemplating or bringing on stream scrappage programs. Greece will soon launch the 13th such program in Europe; Russia is considering one. - David Greene, Edmunds.com analyst

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