Corona crisis hits German car industry hard, is a new scrappage scheme necessary?

The corona crisis is hitting the car industry in Germany hard. Temporary plant closures and closed car dealerships are not without impact on the industry and all major sales markets have recently shown a dramatic downward trend. In Germany, demand for petrol and diesel vehicles has almost come to a standstill: In March, 48.3 percent fewer petrol cars and 39.3 percent fewer diesel cars were registered than a year earlier. Only alternative drive systems are performing better.

Even after the ramp-up of the first plants and the opening of car dealerships, the situation is unlikely to ease for the time being. Production is expected to fall even more sharply this year than during the financial market crisis, when the production of cars and car parts in Germany fell by almost 22 percent despite the successful scrappage scheme.

In view of what at first glance appears to be a similar situation to that of 2008/09, there are now increasing calls for a new edition of the scrapping premium. The crisis at the time even hit the German automotive industry during a boom phase, while the sector was now going through a period of weakness even before the corona pandemic occurred: Net production, new orders and exports, adjusted for prices, already declined in 2018 and 2019, i.e. even before Covid-19.

If policymakers were to consider a new edition of the scrappage scheme, an exact repetition of the programme at that time would hardly be advisable. Thus, at the current point in time, it cannot be predicted whether the success of that time can even be repeated in the current situation. Already in 2009 there was criticism of the target orientation and effect of the scrapping premium. A link between purchasing incentives and climate targets would be welcome for a new scrapping premium. This could ensure the success of the programme with customers and greater acceptance in society.

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