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The Ultimate Bailout Machine

As governments around the world study ways to save tanking car manufacturers, it appears the nation known for fine automobiles has engineered the best solution to the car crisis to date.

According to Der Spiegel, “Included in Germany’s €50 billion ($64 billion) stimulus package, which finally cleared the last legislative hurdle last week, is the so-called “scrapping bonus.” The measure hands Germans €2,500 to junk their old cars — provided they immediately buy a new one.”

“As a result, a number of German brands have experienced record sales so far in 2009. Volkswagen expects February sales to reach 120,000 cars, more than ever before. Opel, which is struggling to survive as its parent company GM sinks further into economic woes, experienced its best month in five years this February, selling 40,000 cars. And the Romanian auto manufacturer Dacia has even had to boost production lately to keep up with high demand in Germany,” Der Spiegel reports.

“There has never been a state promotion that has had such a positive effect as the scrapping bonus,” Robert Rademacher, president of the German Association for Motor Trade and Repairs, told Motor und Sport this week.

This plan is remarkably similar to an idea floated by the Brookings Institution last month, and it’s something the U.S. should adopt immediately. What Der Spiegel article doesn’t mention is the positive environmental impact of getting junkers off the streets.

Still, it is unclear whether the measure can provide long term help to larger, more expensive cars. “Signature brands such as Mercedes, Porsche, BMW and Audi are all suffering,” Der Spiegel reports. Sales of high-end sedans plummeted by 48 percent in January relative to the same month a year before. “Because of higher profit margins on such models, the downturn is doubly dangerous.”


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