Fresh challenge for Germany’s car dealers: too many customers

Nicole Zimmermann spent the better part of a recent Saturday hunting in vain for a new car. She’s got her eye out for something small and peppy: A Volkswagen Polo, perhaps, or a Ford Ka.

Philipp Prase, a Ford dealer in Berlin’s Templehof neighborhood, looks a little exasperated; he’s had to tell too many customers the same thing: He doesn’t even have a Ka sitting in the showroom.

“We won’t have any for four, five months,” he says.

“Really? That long?” Ms. Zimmermann replies. Other dealers bring similar news of months-long waits for many models, even domestic ones.

The economic crisis might have Detroit’s auto giants on the brink of going bust, and some American dealerships might face bankruptcy. But here in Germany, Europe’s largest car market, something like a boom is under way and dealers are having a hard time keeping their lots full.

In February, the same month that saw Detroit’s Big Three post sales declines of nearly 50 percent, new car sales here shot up 21 percent, and could go higher this month. The reason: An incentive program from the German government that is putting €1.5 billion ($2 billion) into the pockets of consumers if they turn in their old junkers and buy a new, more environmentally friendly car.

That amounts to €2,500 per person for the first 600,000 cars sold.

“I would never think of buying a new car without this offer,” Zimmermann says as she navigates her black 1997 VW Polo through traffic, the odometer registering comfortably above 100,000 miles. “It’s like a kick in the seat. It made me start thinking that maybe I could afford one instead of a used car.”

350,000 cars sold since January
Judging by Germans’ response to the government incentive so far, many are thinking like Zimmermann. Since the incentive debuted in January, they’ve bought 350,000 new cars under the program. Domestic manufacturers are reporting a 60 percent increase in orders.

With automotive sectors hurting worldwide, other European countries are following Germany’s lead.
Italy is offering each citizen €1,500 to buy a new car, and doubling that figure for those who buy hybrid models. France is offering €1,000. Britain is weighing a similar incentive.

In most cases, including Germany’s, the incentive programs require customers to turn in a car that is at least nine years old to qualify for the money.

Contrast to the US bailout approach
Such customer-driven bailouts stand in contrast to the approach taken in the United States, which has considered direct loans to automakers rather than substantial customer incentives to give people a reason to go car shopping again.

In Europe, countries are still debating whether to rescue individual automakers that are struggling. Germany has balked at rescuing GM’s Opel brand, which employs 26,000 people here and is near collapse. VW is still operating under scaled-back production and shorter work weeks. Sweden recently decided against saving its iconic Saab brand, also a subsidiary of GM.

Europe’s auto industry started the year with a 30 percent decrease in new-car registrations compared with the year before, according to the European Automobile Manufacturers Association. So programs to grow consumer demand might offer at least a glimmer of hope following more than a year of dismal sales and production stoppages across the Continent.

IHS Global Insight, an economic analysis firm, predicted last month that incentive programs could lead to 500,000 more new-car sales this year. But given the extent to which Germany’s program has taken off, some experts are revising those estimates upwards.

In Germany, where 1 in 5 people work in the automotive industry, customers are not the only ones happy with the program.

Salesmen now see their showrooms humming during the peak hours. At the Ford dealership where Mr. Prase works, it feels like a Memorial Day sales event in good times: there are the sounds of printers and pecking on large calculators, rubber soles squeak on the polished floor, a coffee machine chortles in the corner.

The dealership is already sold out of last year’s models and showroom cars. “We thought we had enough [in stock] for the whole year,” he says. “Back in December, we would never have imagined anything like this.”

“The incentive shows that there is money out there, because people are buying new cars, even people who say they don’t have money,” says Lothar Dalter, a Volkswagen salesman.

Mr. Dalter makes his pitch to Zimmermann, who eyes a new black Polo in a cold back lot.

This car, he tells her, might not be here the next day. And in a move mirrored by other carmakers, he says VW is giving its own cash bonus – ¤1,000 in this case – to sweeten the deal.

Programs like Germany’s have their detractors among auto industry experts and economists like Jan Hagen at the European School for Management and Technology in Berlin. Mr. Hagen says incentives do little to address a bigger issue facing European automakers: they are still producing too many cars.

Germany alone produces nearly 6 million a year in normal times.

“This is not really creating new demand, it’s just shifting current problems to the future,” Hagen says.

Others lament that there is nothing in the programs that requires people to buy domestic cars. Germany’s program is seen to be as much of a boon for foreign carmakers as German ones.

Still, Germany’s government, bowing to public pressure, announced this week that it is extending the incentive beyond the initial 600,000 car cap, which dealers say could be reached by next month.

That’s good news for car shoppers like Zimmermann who are being told by dealers to place their orders to guarantee the government bonus.

She now has more time to weigh the merits of one model over another. On an Opel lot, she spies a light green Corsa.

“That’s a very nice car,” she says. “And cheaper than a Ford.”