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In Europe, doubts about ‘clunker’ programs

A new car, with a sticker on its windshield advertising the British government’s version of a cash for clunkers plan, sits on a London car lot. A new car, with a sticker on its windshield advertising the British government’s version of a cash for clunkers plan, sits on a London car lot. (Sang Tan/Associated Press)
By Matt Moore
Associated Press / August 9, 2009

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BERLIN - For months, European car buyers have been junking clunkers for cash, boosting automakers sales - but making experts fear that once the government handouts stop, the struggling car industry will return to a slump no pile of cash can conquer.

The various programs have surged in popularity since France introduced the idea in December 2008.

Germany, Italy, Britain, Romania, Austria, the Netherlands, Spain, and Serbia have introduced their own versions aimed at shoring up local automakers, from Germany’s Daimler AG to Romania’s Dacia.

While critics contend the billions in handouts only benefit automakers at the expense of other industries and have just delayed a slump in car sales, proponents point out that it has kept large companies operating and helped reduce layoffs and temporary shutdowns.

But only for a time, some fear. The question is, what happens when the money runs out - will the industry ease off the ramp or drive off a cliff.

“It is a question of somewhat forestalling the inevitable,’’ said Paul Newton, an auto analyst for IHS Global Insight. “The reality is that without it, the chances are you’ll see a lot of businesses going to the wall.’’

Instead, he said that auto companies and dealership owners are using the programs, for now, to clear inventory and build up cash on hand before “for what is very likely to be a very tough 2010.’’

US officials consulted with Germany before implementing their own version of the auto rebate program, according to guidelines published by the National Highway Traffic Safety Administration, the federal agency running the US cash for clunkers effort.

One dramatic difference? The US has idled the clunkers by requiring dealers to kill the engine by pouring sodium silicate into it in order to claim a refund for the clunker rebate. The substance, often referred to as liquid glass, permanently damages engine parts.

German officials noted this week that there has been firm evidence of clunkers there being routed abroad - to Africa and even eastern Europe - and being resold.

The programs have drawn fierce criticism. In July, Czech President Vaclav Klaus vetoed parts of a stimulus package, including a local version of cash for clunkers.

His office said the measure favored “short-term interests of several strong players from the auto industry at the expense of other sectors and firms.’’

In Germany, critics have likened the bailout to giving free drugs to addicts.

“The auto industry is waiting on the bonus like a drug addict waits for the next shot,’’ Steffen Kampeter, a senior lawmaker in Chancellor Angela Merkel’s Christian Democrats, was quoted as telling the Financial Times Deutschland newspaper.

“It should instead put forward concepts on how it plans to deal with the structural challenges for the industry.’’

Sylvie Cariou, the director of a Citroen dealership just outside of Paris, said that as soon as France implemented its own program, the impact was noticeable.

“Right away the effect that we saw was more traffic’’ in her dealership, she said. “For people who didn’t think they could afford a car, it motivated them to buy.’’

Across Europe, the programs had helped to limit the year-on-year sales decline in the second quarter to 5.6 percent, compared with a 17.4 percent drop in the first quarter.

European manufacturers’ group ACEA reported a 2.4 percent rise in European car sales in June, the first increase after 14 months of falling sales.

How it can last, though, is not certain. Germany - home to Volkswagen AG, BMW AG, and Daimler AG - has made clear that when the money runs out the program won’t be continued.

“After that, it’s over,’’ said economy minister Karl-Theodor zu Guttenberg.

Europe’s automakers are pleading for governments to withdraw the support gradually, fearing that until the economy is back on track, a dramatic end to the plans could result in a disorderly collapse in demand and chaos in the industry.

Renault chief operating officer Patrick Pelata recognized that such schemes can’t last forever, but said the crisis “is still here.’’