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‘Cash for clunkers’ hits a few potholes

Marketplace Staff Jul 23, 2009

‘Cash for clunkers’ hits a few potholes

Marketplace Staff Jul 23, 2009


Kai Ryssdal: Tomorrow, the federal government launches its cash for clunkers program. Tax breaks and vouchers for consumers who upgrade to new more fuel-efficient cars. It’s not just the U.S. government that’s bribing drivers into greener ways. The Germans have a similar plan. And sure, it’ll help clean up the atmosphere. But will it help the economy? Brett Neely reports from Berlin.

BRETT NEELY: Everyone got something from Germany’s cash for clunkers program. The government, which is up for re-election in September, could boast about putting more clean cars on the road.

The auto companies avoided laying off workers and closing plants. And German consumers got a $3,500 government rebate for buying a new car — foreign or domestic — and junking their old one.

New car sales have soared. With so many Germans ditching their old set of wheels, the program’s having some unintended consequences.

Clunker carcasses have been streaming into this junkyard on the outskirts of Berlin.

BRUNO Machner: I’d say that today we’re seeing 30, 35 percent more car bodies than before the scrapping bonus. Just today we’ve got four cars coming in because of the program.

Bruno Machner manages the scrapyard. He makes his business from salvaging spare parts from junked cars and then selling the scrap metal. With nearly two million cars flooding into scrapyards like this one, Machner says the profits haven’t appeared.

Machner: The supply of spare parts has greatly increased because the number of scrapped cars has gone up. And the prices for spare parts have also, quite naturally, dropped.

That’s not all. Scrap metal prices have also fallen, partly due to the number extra cars that have been junked. Scrap metal dealers such as Machner aren’t the only people being hurt by the government’s scheme.

At an empty used car dealership just across the street, salesman Joerg Binna points to rows of unsold cars. With consumers getting paid by the German government to buy new cars, Binna says the used-car market has collapsed.

JOERG Binna: Because this was just for new cars, the used car dealers got hurt.

When he does manage to sell a used car, it’s hard to find another used vehicle to replace it on the lot because so many cars are being junked.
That’s led to some desperate measures.

Binna: I can’t get any cars in Germany, the customers aren’t offering them anymore, they’re all getting scrapped. We’re having to buy cars in Spain, France, Hungary, Austria. The day before yesterday I was in Poland and bought cars there.

Economist Uwe Kunert says if the government’s goal really was to improve the environment, it made a mistake by focusing the program on new cars.

UWE Kunert: A nine-year-old car isn’t very old by nowadays standards.

He says many of the cars being scrapped weren’t really clunkers. They had good environmental ratings and could have been driven for another five or 10 years.

Worse still, he says the cars that German consumers are being encouraged to buy need not be more fuel-efficient than the cars they junked. This is a requirement of the new U.S. program.

Kunert: Probably a few people are out there that buy a second or third car that they wouldn’t have bought otherwise, but other than that, it’s more or less demand that would have popped up next year anyway.

And with next year’s customers buying a new car this year, Kunert says car sales will fall dramatically in 2010.

In Berlin, I’m Brett Neely for Marketplace.

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