"Scrappage bonus" - driver or junk

June 2009

Some see it as an effective boost mechanism for the struggling automotive industry. Others say it is an economic disaster. The “scrappage bonus”, as the coalition’s economic project is called, is hotly debated among economists, politicians and car industry representatives. We are led to believe the consumers can look forward to a bonus for the final trip to the scrapheap, for which the state pays. But this is not quite true. The numbers for and against are virtually equal.

The injection of billions, with which the government hopes to persuade German citizens to buy during the main election year, will be enough for around two million vehicles. Hundreds of thousands have already bought a new car and applied for state subsidies. Furthermore, it is also certain that the environmental, or scrappage scheme launched at the start of 2009 is one of the coalition’s best known projects. Almost 98% of Germans surveyed know about the incentive program for the scrappage of old cars. This came to light from a survey carried out by GfK Marktforschung for the GfK Association. In Eastern Germany, this figure is more than 99%. Over half also know exactly what the term means and a further third has a vague understanding the concept.

The government’s best known economic project

Knowledge of the premium, which consumers can apply for up until the end of the year to scrap an older car, appears to have infiltrated all age groups, income brackets and levels of education. And it was not only those who had used the scheme who knew about it, which was the case for just 3% of households at the time of the survey.

But what do Germans think of the bonus for cars that are not actually all that old? The numbers for and against are virtually equal. Around 39% of a total of 2,159 respondents were positive, and 37% were negative. 22% claimed not to be able to judge the pros and cons for themselves. The bonus has initiated very little in terms of pure enthusiasm, with only 9% of people answering that the model was a “very good measure”, others who were in favor found it “okay”. The opposition was much clearer: 18% believe the coalition’s latest car policy to be “very problematic” and a further 19% think it is “not good”. This “election gift”, as it is often referred to by critics, is being met with little excitement.

Those in favor, believe in the positive effect on the auto industry

EUR 2,500 from the government was devised to boost the economy, secure jobs in the auto industry and be good for the environment, or so it was intended by those who instigated the scheme, and these are the arguments used by the respondents who are in favor of the scheme. Almost 29% believe that the bonus will drive up car industry sales and a further 24% like it because it incentivizes people to buy cars. Around 17% hope that the new, lower emission cars will be good for the environment. However, almost as many are simply pleased that they can get money in exchange for an old car. Though the older the respondent, the less important the personal gain. Only 10% of over-50s in favor of the scrappage scheme are in favor because they can get a subsidy for their new car. With 34 year olds, this figure was significantly higher at 21%.

The crisis will come anyway, fear the opposers

Postponing is not a solution fear the majority of those who oppose the scheme. 37% believe that the positive effect on the economy may soon burst, and simply push the problems through to next year. In addition, critics are questioning who the state should really be helping in the crisis. Consumers have been concerned with this for some time now, after the state rescued Opel while refusing to assist goods and tourism group Arcandor. Regarding the scrappage scheme, the issue of fairness is also the second most important argument for opposers. Almost 16% of those surveyed complain that the scheme only helps a branch of the economy, echoing the criticism of many economists. “This kind of special treatment is not well received by other industries,” said the President of the German Chamber of Industry and Commerce (DIHK), Hans Heinrich Driftmann, in various press reports. A further 15% of critics also found the government’s handling of taxpayers’ money incomprehensible and regard the bonus as a waste.

Consumers expect further bonuses

Less than a fifth of respondents believe that the state will extend the “scrappage bonus” beyond 2010. A far greater number are of the opinion that the government could provide a state subsidy for other areas. A total of 31%, including those for and against the scheme, believe it is possible in principle.

Germans are very interested in cheap offers, especially in the crisis period, but what about when the scrappage scheme comes to an end? Will consumers have become used to cheap prices, special bonuses and discounts? Businesses have now copied the government model and are trying to entice consumers in other areas. Money is offered when exchanging old for new in areas such as furniture, electronic equipment and even PC circuit boards. Consumers can cut costs in many places, and they expect this in business dealings too. As soon as the government bonus expires, car manufacturers and other traders will be offering their own subsidies, according to half of those surveyed.

Until then, the debates on these and other economic injections will continue, and further applications for state subsidies will be made for car purchases. On average 3% of households intend to buy a new car this year and take the EUR 2,500. This also includes opposers of the scheme.

Data source: GfK Association (Omnibus survey, May 2009).

If you have any queries concerning this article or Compact, please contact Claudia Gaspar,  e-mail: hello@nim.org.