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The global automotive industry could face the worst crisis ever, but do you know of the Ford Motor plant in Cologne There, workers put in extra shifts on weekends to deal with the demand for the Fiesta compact actually, Ford sales were booming in Germany customers have placed orders for 68,500 Fiestas, Ka and subcompacts medium enterprises MERGERS within four months to April, more than three times the number of 'last year.
Thank you for this gravity-defying performance go - at least partly - the German government's so-called premium of the environment, the Germans prefer to call Abwrackprämie, or remission of wrecks.
The program, launched in February, is a measure of the most visible stimulus Chancellor Angela Merkel It pays 3320 to people who scrap a car that is at least nine years old and buy a new car instead of the system more than offset the effects of the global economy slowing domestic auto sales, preserved factory jobs, and encouraged people to replace gas guzzlers, scrapping exhaust spewing with the latest engine technology.
But the program has also had negative effects that US policymakers do well to consider as they would move towards the introduction of a similar program in the United States.
Cash for Clunkers programs are certainly a trend Last month, the British government announced a plan of 453 million offer a discount of 3,000 to motorists who trade in cars more than 10 years Under the proposals - which will last until 2010 or until March money flows - the taxpayer cough up half the money, with car manufacturers pick up the rest of France also has a bonus program for clunkers that boosted domestic sales.
There is little question these programs have beneficial effects not only for the economy but also the environment Although the Europeans have never been in love SUVs and large pickup Americans, the program of Germany encouraged drivers to very old vehicles to trade up to cleaner, more fuel-efficient cars a 2009 Ford Ka gets 25 percent better fuel economy than the 1999 model, and emits 28 percent less CO2.
The program also helped the German car manufacturers avoid significant layoffs in total unit sales in Germany increased 18 percent in the four months to April vs. A year earlier, helping to offset a 40 percent disastrous export sales Although most German automakers have cut hours or closed for short periods, there is no mass job cuts the automakers are the largest industrial employers in Germany, and delivery of wrecks is a reason why the country's unemployment rate rose fairly modest so far.
But the repayment also some retailers major drawbacks, for example, complained bitterly that the program aspires spending in other categories German retail sales fell 1 5 percent in March - the third consecutive monthly decline - a fall that groups the retail industry blame partly on incentives to buy cars instead of other products.
Reimbursement is also expensive Nominally it will cost you with 6 6 billion if the Germans take full advantage of the program The actual cost is more difficult to understand Increased sales will increase revenue from the sales tax, and the state will avoid the cost of unemployment benefits for workers who may have lost their jobs on the negative side of the balance sheet, the program will kill jobs in other sectors of the economy, such as auto repair shops or car dealerships Used a study by the economic Institute of Halle, a group of major reflection, believes that the net charge on the budget of the German government will be 3 to 5 billion.
This seems a small price to pay, however, another problem is that much of the money - 75 percent, according to the study Halle - will go to people who bought cars anyway and much of German taxpayers money will flow to manufacturers outside the country While Ford makes Fiesta in Cologne, the Ka comes from a plant in Poland Fiat, Renault and other non-German automakers are among the main beneficiaries of the refund .
Meanwhile, some of the largest car companies in Germany see little benefit While Volkswagen, Opel and other lower-priced vehicle manufacturers have marked large, few people are trading in their Mercedes BMW or Porsche-nine Clunkers recently said that not a single customer has taken advantage of the program - perhaps because people are embarrassed to appear in a Porsche dealer with a car decrepit high-end car manufacturers are more likely to benefit from the program cash for clunkers in the United States, one of their most important markets, the German version.
Inevitably, the effects of the discount program also beginning to wear off the number of Germans refund request has plunged in recent weeks, according to German press reports said Ford orders in April for the Ka, Fiesta and Fusion were up 56 from a year earlier, a very good increase, to be sure, but a substantial slowdown from the beginning of the year.
In addition, the reimbursement is not the only thing driving the German sales at Ford The company launched comprehensive redesigns of the Fiesta and Ka, in recent months, both meet the buyers of economy class most likely to still be driving a girl of nine years Ford has also resulted in growth with cheap funding programs and services in collaboration with the delivery of wrecks you can hunt in a new Ka to 130 per month with no down payment, and Ford will launch a four-year service plan.
Whether the delivery of the wreck of Germany is successful depends on the duration of the slowdown in the automotive industry hard If it continues, reimbursement may simply delay the pain and prepare the ground for a drop more pronounced later economists in the year Ulrich Blum and Sabine Freye, authors of the study of the Halle Institute, while criticizing many aspects of the program, concede that he could avoid long-term damage to the car industry, which could be the result of a prolonged slowdown If the German automotive industry can repeat its previous success, they write, then, in retrospect, the program will be considered a problem, but an effective insurance policy.
Ewing's European regional editor in BusinessWeek With Mark Scott in London.
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