Germany's car scraping frenzy

It appears that Germany's Abwrackprämie (the 2,500 € subsidy paid to anyone who scraps a 9+ year-old car and buys a new one) is a smashing success.

A spokesperson for the recycling industry (representing the various companies involved in scraping cars) has now warned people to think twice before scraping a car, because many of the cars that are being scraped in order to get the Abwrackprämie are apparently worth more than 2,500 € on the used-car market.

Imagine that: An industry lobbyist profiting from this measure is telling people they should stay rational and think twice!

The funds earmarked for the subsidy were 1.5 bn €, enough for 600,000 cars. Apparently, nearly 900,000 applications have come in by now, and the government has more or less promised that the subsidy will be extended to everyone who applies until year-end.

From an economic point of view, this is sheer madness:

So many pefectly good cars that could have been driven for several more years by students or poor Eastern Europeans are now being needlessly destroyed. Most of those cars are fine from an ecological point of view (I drive a 13 year old Mazda, and the car had no problem getting the "green" eco-sticker), so calling this an "eco-measure" is ridiculous. Meanwhile, used-car prices are skyrocketing due to lack of supply.

And that's not all: For years, politicians have tried to make driving more expensive, because it was considered the correct thing to do from an ecological point of view. Plus, there is wide-ranging agreement that as a society, we will anyway have to get used to living with fewer cars in the longer run due to resource-constraints. But what do we do? We heavily subsidise car buyers.

Sure, the car industry is in trouble and needs some sort of help. Sure, this particular measure appears to create quite a bit of extra demand in the short run, and it probably doesn't crowd out too much other consumption (I suppose most car buyers will either dig into their savings or take out a loan). But still...

Anyway, at least those anglo-saxon commentators perennially asking the "surplus countries" to stimulate demand should be happy about the German government subsidising the purchasing of small foreign cars: The trade surplus will be several billion Euros lower as a result, and some ailing Eastern European (and Asian) countries will be thankful for a bit of extra export demand. Of course the US and Britain won't benefit much, considering they don't export small cars... (ok, strictly speaking that's not correct: Britain exports the Mini and some Ford/GM models, so maybe they are selling a few thousand extra cars to Germany)