Germans flock to car showrooms

Publication date: 02 April 2009

Germans flock to car showrooms

Germans are ignoring global gloom and buying cars in droves, a sign that government incentives to boost vehicle sales and fight recession are luring consumers into showrooms, albeit at the expense of high street retailers. The nation’s car dealers bucked a global slump as sales rose 11.9 per cent in February. But a decline in consumer electronics drove retail sales 0.2 per cent lower, the Bundesbank, Germany’s central bank, reported yesterday.

The car sales trend provided a rare glimmer of hope in a dark economic landscape, a success for Berlin’s “cash-for-clunkers” scheme, which gives car owners a €2,500 ($3,300, £2,300) subsidy if they scrap an old vehicle and buy a new one.

But retail sales suggested the deal would not be able to stave off a decline in private consumption, the last straw economists had clutched at, hoping Germans would spend to cushion recession after big pay rises last year. Carsten Brzeski, at ING Financial Markets, said Germans’ worries about jobs appeared to be eroding hopes “low inflation, higher disposable incomes and pent-up demand” could rouse spending to prop up the economy.

The eurozone’s jobless rate rose to 8.5 per cent in February from an upwardly revised 8.3 per cent the prior month. German unemployment has grown less quickly than in other countries, but job insecurity seems to be rising.  Meanwhile, machinery orders dropped 49 per cent in the year to the end of February, the biggest annual drop since the VDMA machinemakers’ association started its count in 1958.

The European Central Bank is expected to cut its main rate by another 50 basis points to 1 per cent today. It could announce other measures to boost the economy, possibly even including asset purchases so industry can borrow more cheaply. The German government agency responsible for the cash-for-clunkers scheme said it had received 870,000 applications for the scheme Berlin had limited to €1.5bn, or 600,000 cars when it launched was at the start of the year. Thomas Steg, chancellor Angela Merkel’s deputy spokesman, yesterday pledged that the pot would be topped up. “The commitment remains that [the government] will pay the environment premium throughout 2009,” he said in Berlin.

Alexander Koch, an economist at UniCredit, said the scheme, which other capitals have copied and even the US is now eyeing, “could not have come at a better time” to bolster the economy in what could be its weakest months. He said it could lead to 800,000 car purchases and contribute “more than a point” to quarterly gross domestic product, cushioning a fall in GDP that is expected to exceed the 2.1 per cent fall of the last three months of 2008. But economists stressed this bounce would not come free of costs over the year: lower retail sales as consumers switch from buying televisions to buying subsidised cars, and, eventually, a painful normalisation of car sales.

Source: Financial Times