Car companies fear downturn after scrap-bonus boom

Auto industry experts fear a sharp downturn in sales after this year’s figures have been dramatically boosted by the car-scrapping premium the German government introduced in January, news magazine Der Spiegel reported Thursday.

Car companies fear downturn after scrap-bonus boom
Photo: DPA

Latest figures show that the ‘cash-for-clunkers’ scheme, where consumers get a €2,500 premium for scrapping an outdated car and buying a new one, is continuing to stimulate the auto industry.

The number of new cars sold in June rose by 40 percent in comparison with June 2008, the Association of International Motor Vehicle Manufacturers (VDIK) revealed Thursday. This represents a further acceleration of the already booming sales.

In the whole first half of the year, 2.06 million new cars were sold in Germany, representing a 26 percent increase. Small cars are in particularly high demand, while the premium has been especially popular in the former East Germany, a breakdown of the VDIK’s statistics showed.

But fears are growing within the industry that sales will plummet once the government stimulus expires at the end of the year, or when the €5 billion set aside for it is used up, the magazine reported.

“For 2010 we are expecting a total market of 2.6 million new car registrations,” said Rolf Dielenschneider, head of the German branch of the Volkswagen subsidiary company Seat. This would be one million less than this year.

With four-fifths of the cars made by German firms sold abroad, where conditions “are by no means rosy,” the mini-boom in the German market is no reason for “euphoria,” said Matthias Wissmann chairman of the German Association of the Automotive Industry (VDA).

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Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s.