German automakers are demanding a purchase premium for new cars in order to better emerge from the Corona crisis. But it is counterproductive. If tax dollars do anything for business, then probably only one thing: damage.
The main members of the German auto industry have been asking for state support for their industry for months. Such a bonus “enables the automotive industry to emerge more quickly from the crisis and thus also contribute to the recovery of European economies”, said Hildegard Müller, chairman of the powerful lobby association VDA. BMW CEO Oliver Zipse and VW brand chief Ralf Brandstätter said a buy-in bonus was even a contribution to climate protection.
They all want the purchase of new cars financed by taxes. Now one might rightly answer: why should I also pay for my neighbor’s new car?
Demand is short-sighted and counterproductive
But another important question arises: does such a purchase premium really benefit our economy and the environment? The reverse is likely to happen – the buy premium would do more damage in the long run. And not just economically, but ecologically as well – although that initially seems different.
Because of course it’s true: new cars can be cleaner than old ones. On average, they are also heavier and stronger. Added to this are the tons of environmental toxins that are emitted during their manufacture. The environmental impact of systematically replacing old cars with new ones is therefore minimal.
What will happen to old cars if their owners buy a new one? Stay like Used vehicles in our streets? So the environment would not be good. What if the manufacturers took it back and scrapped it? So neither. Many of our discontinued cars are enjoying their second spring in countries of Eastern Europe or Africa – and pushing even older, dirtier models off the road there. This cycle would be blocked by a buyer’s premium.
Exchanging old cars for new ones – a “sensitive contribution to climate protection”, as the VW brand boss puts it? So it’s not that simple. This is shown by experience since the scrapping bonus in 2009. At that time, the state spent five billion euros to help the automotive industry to emerge from the aftermath of the financial crisis.
By the way, wrecked cars were on average 14.4 years old – that’s exactly the average age at which cars were thrown away even without bonuses. So, from a purely statistical point of view, the premium hardly convinced anyone to buy who would not have traded in their old car for a new one anyway.
So a premium doesn’t do much for the environment. But who then?
There is no doubt that our automotive industry is a key industry to which many other industries are attached. This is why our tax money is so important to automakers, they explain. The only question is: will Germany really do better if the government makes several billions available to buy a car?
Purchase bonus strengthens import brands
Here, too, it is worth taking a look in the rearview mirror at the 2009 scrapping bonus. Before the promotional program, our manufacturers’ market share in Germany was 64%. Soon after, it was only 53.5%. And their sales in Germany fell by a fifth during that time.
So the bonus did nothing to them. And there’s a simple explanation for that: Whoever scrapped an average 14-year-old car didn’t walk into a stylish BMW showroom or buy an expensive Mercedes. Instead, the path usually led to the cheap importer. Hyundai, Suzuki or Fiat: they were the big winners of the scrap bonus. The European economies that interest the president of the VDA so much have had little.
Why should it be any different eleven years later?
And why should the state encourage the purchase of new cars and not, for example, support the construction of houses? After all, the construction industry is also a key industry. And we lack living space, but certainly no cars.
Inevitable sales collapse
We will see a drop in car sales anyway. All major forecasts see a drop in demand in the global market. This was already the case before Corona and has a variety of reasons, such as trade wars or saturated demand. Short-term and costly buying bonuses can delay this crisis, but they certainly cannot prevent it. That is why our taxpayers should be directed to where they really have long term benefits. A national purchase premium for new cars does not provide this advantage.