Page last updated at 23:08 GMT, Thursday, 16 April 2009 00:08 UK

Germans wary of car scrapping scheme

By Ray Furlong
BBC correspondent, Hamburg

Cars ready for scrapping
Germany is paying motorists to trade in old cars for new ones

Kurt Kroeger is a happy man - his business has gone from bust to boom in the space of a few months, thanks, he says, to Germany's car scrapping scheme.

"Our sales are up 100% on last year," he says, showing me around his gleaming showroom on the edge of Hamburg.

"When scrappage was first introduced, we had hordes of people here. We had to work round the clock. The customers were served coffee and cakes to calm them down, while they waited for a free salesman."

Downstairs, Mr Kroeger shows me a garage with about 20 cars in it - all being picked up by satisfied customers today.

His experience is not unique. In the first three months of this year, Volkswagen reported a recession-busting 36% increase in new car registrations. Opel claimed a 50% increase in orders in the first quarter of 2009 compared with the previous year.

'Old banger bonus'

And Germany's scrapping scheme is clearly responsible.

Called the "Environment Bonus" by the government and the "Old Banger Bonus" by everyone else, it's seductively simple - anyone with a car that is at least nine years old can apply for the scheme. The car is scrapped, and they receive 2,500 euros off the price of a brand-new one.

Earlier this month, the German government extended the scheme until the end of the year, raising the budget for it from 1.5bn to 5bn euros. And yet, ever since, there's been a rising tide of criticism.

Kurt Krueger in his showroom
Kurt Kroeger's business is booming

"Since it's been introduced, people are buying cars like mad," says Joerg Maltzen, a journalist at Bild-Auto, Europe's biggest-selling car magazine.

"But it's just a temporary effect. The people who are buying the cars now will not buy next year - so we're all expecting a sharp slump in 2010.

"Also, it's mainly small cars in the lower price segment that are selling. BMW, Mercedes and Audi are profiting very little."

Economists and even government backbench MPs have complained about this, arguing that the scheme is actually benefitting foreign carmakers. Others say it's just diverting money from other sectors of the economy - leaving them short-changed.

One of the highest profile critics is Justus Haucap, head of Germany's monopoly commission.

"The economic benefit is minuscule compared to the cost that it brings. The money could have been spent much more wisely on other things, such as infrastructure and education," he says.

"It's a waste of money, and I think it's actually pre-election politics," he adds. "If we hadn't had an election this year, I'm very doubtful the scheme would have got going."

Multiple complaints

Another critic of the scheme is Dietmar Lensch, who runs a huge scrapyard in Hamburg. There's a giant pile of crushed cars and a vast concrete yard with many more awaiting the same fate.

"Look at this one," he says, opening a car door. "It's got just 20,000 kilometres on the clock. That's crazy."

Dietmar Lensch at his srap yard
Dietmar Lensch is losing his supply of used cars

Mr Lensch has multiple complaints. Under the scheme, he has to crush the cars - he can't sell them. So his supply of used cars to sell has run dry. He can salvage spare parts from them. But his stores are now overflowing with engines, wing-mirrors and bumpers that no-one wants to buy. Oh, and the price of scrap metal has collapsed.

"In the last three months, we crushed 900 cars. In the whole of last year we crushed 1,000. Look at this Mercedes - we must crush it!"

A colleague says four scrap dealers who tried to resell cars traded in for scrapping are being held by the police, who mount strict inspections.

But a short drive away, back at the showroom, Mr Kroeger has just presented a satisfied customer with a bouquet of flowers. "We do this for all of them," he says.

Ewelin Hassenberg has just traded in her 20-year-old Volkswagen for scrapping, replacing it with a Chevrolet Aveo - made in Poland.

"I would not have done it without this scheme," she says. So, is it a good scheme? "Well, for me, yes. But I'm not sure whether it makes sense for people to do it with 10-year old cars. That's just not sensible."

You can hear more on tonight's PM programme on Radio 4 at 1700.

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