Economic First Aid for Carmakers Britain Mulls 'Cash for Clunkers' Program

Britain is expected to become the next European country to adopt Germany's successful "scrapping bonus" to stimulate the ailing automobile industry. The program, which has seen German auto sales surge by 40 percent, offers customers a premium for trading in old cars and buying new ones.

Britain has indicated it may be the next to join a growing list of European governments that have launched special stimulus programs aimed at shoring up a flagging automobile sector. The Times of London reported on Sunday that British Chancellor of the Exchequer Alistair Darling plans to present a draft of a "scrapping scheme"  modelled after Germany's successful cash for clunkers program when he presents his budget on April 22.

A scrapping yard in Stuttgart: Britain is now preparing to introduce a "cash for clunkers" program like Germany's to boost auto sales.

A scrapping yard in Stuttgart: Britain is now preparing to introduce a "cash for clunkers" program like Germany's to boost auto sales.

Foto: DDP

The paper writes that Darling and officials in the Treasury have been impressed by the results the programs have delivered in other countries. Last month, Britain experienced a 30 percent drop in new car registrations at a time when Germany recorded 40 percent more vehicle sales than during the same period a year earlier. In Germany, Treasury officials noted, the precipitous drop in auto sales has been reversed.

The Times reported that details are still being hashed out between the Economics Ministry and the Treasury in London, but that the plan will look a lot like Germany's. According to the paper, a £2,000 (€2,200) scrapping premium is to be given on trade-ins of any car over nine years old.

In contrast to Germany, though, Darling and Economics Minister Peter Mandelson are also seeking industry participation in the program. At the very least, they want a binding commitment that existing rebates will not be dropped because of the government program. So far though, the paper reports, the British automobile industry is resisting the government's push for it to support the program with its own means.

The paper also cited industry sources saying that any amount less than £2,000 would be insufficient to help boost car sales. For months, Britain's Society of Motor Manufacturers and Traders (SMMT) has been pushing for the scrapping premium and has criticized the government for moving too slowly to introduce such a program.

'The Incentive Needed'

In addition to Germany, a number of European countries including Austria, France, Italy, Portugal and Spain also have stimulus programs in place for carmakers suffering from the credit crunch and global financial crisis  -- and the success of these stimulus efforts has been measurable. China and Brazil have also succeeded in increasing car sales again.

"A scrapping scheme will provide the incentive needed and the evidence is clear that schemes already implemented across Europe do work to increase demand," SMMT chief executive Paul Everitt told the Times. "The UK is the only major European market not to implement a scheme." SMMT estimates the one-year program would cost about £160 million.

Last week, the United States also said it would adopt the successful European recipe. During a dramatic speech to the auto industry, US President Barack Obama praised the scrapping premiums as exemplary and "successful" and pledged to introduce a similar program in the US. But the program could be a lot more expensive for the United States than Britain: Already, an estimated 250 million cars and trucks are driven in America. Of those, close to 30 percent are at least 15 years old, meaning the country could have as many as 75 million candidates for scrapping.

In Germany, demand has been so strong that the government plans to extend its scrapping bonus  through the end of the year. Last week, Chancellor Angela Merkel's cabinet moved to extend the scheme until Dec. 31 and to provide €5 billion in government funding -- enough to cover up to 2 million cars.

The program has been highly successful in political terms for the German government in this election year since it is believed to have saved thousands of jobs within the automobile industry. It has also helped Opel, the beleaguered German subsidiary of General Motors, to report its best first-quarter results in eight years. So far, more than 1.2 million Germans have applied for the scrapping premium, more than double the original government estimate.

Despite its success, though, the program in Germany also has plenty of critics . Environmentalists say it doesn't promote the use of greener technologies. And some economists argue that the surge in car sales will be followed by a steep drop in demand once the initial euphoria fades. Worse still, they argue, the scheme is being paid for with new debt that will result in €700 million in interest payments for the government that will have to be paid back by future generations.

dsl -- with wire reports
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