Brett Neely

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I had a story air on Marketplace recently about Germany’s experience with it’s cash for clunkers program, known here as the scrapping bonus.

These programs were sold to both the German and American public as stimulus and environmental measures. In the German case, there’s a lot of evidence to suggest that the program won’t achieve either goal, though the program’s wild popularity seems likely to help German Chancellor Angela Merkel secure a second term.

First, I made the point that many of the people who took advantage of the program would have bought a car anyway. Instead of buying a car next year, they bought one this year. So long as domestic and foreign demand stay weak, the measure only defers the pain for the auto industry, but doesn’t prevent it.

Second, though I didn’t make the point in the piece for time reasons, the measure spurred sales of small cars, which didn’t help most of Germany’s car companies that specialize in high-end vehicles. As one of my interviews made it clear, Germany’s an open economy and policymakers get that they can’t write “Buy German” regulations. But why should German tax money subsidize companies like Hyundai, which profited the most from the program?

Obviously, a subsidy for luxury cars wouldn’t make much sense (though the slogan “Porsche für Alle!” would be cool) but if the goal is maintaining employment and/or preventing mass unemployment, why not give the money to those likely to be affected? Or if the goal was a car in every garage, why the big gift to the middle-class, who can already afford a car or two?