German auto sales surge in 'shopping frenzy'

3rd April 2009, Comments 0 comments

The rise is the biggest since the economic boom that followed German reunification, however experts warn that sales will slow down as the initial rush of people applying for the car-scrapping bonus thins out.

Frankfurt -- German auto sales shot up 40 percent in March compared with the same month in 2008 in what analysts on Thursday called a "shopping frenzy" that will lighten the recession in Europe's top economy.

The VDA automobile federation said sales in March rose to 401,000 vehicles, explaining the rise was due to a government bonus for scrapping old cars for newer, greener models as well as a larger number of business days this year.

The rise was the biggest since 1992 during an economic boom that followed German reunification, VDA said, which also warned however that sales would slow down as the initial rush of people applying for the bonus thins out.

The car-scrapping bonus is set to be phased out at the end of the year.

German economic analysts from Italian banking group Unicredit said in a research note that "something has started which had not occurred for a long time in Germany: a shopping frenzy."

"Applications for the car-scrapping premium literally skyrocketed, exceeding one million," they added. But they warned this did not mean an end to recession and said there would be more gloomy data to come.

Alexander Koch from Unicredit said the increase in car sales "should bring some desperately needed support for the economy in the first quarter," adding more than one percent to quarterly gross domestic product (GDP).

He also said however that while the car-scrapping bonus would be successful "in the short run," there could be setbacks later in the year. "The party ... will inevitably be followed by a hangover," he warned.

Introduced in January to help the auto industry cope with recession, the car-scrapping premium offers motorists a 2,500-euro (3,300-dollar) bonus if they trade in their old car for a new, more environmentally friendly model.

Since Monday, interest has soared as a new application procedure became available over the Internet, with total requests running up to 941,289, the Bafa agency managing the scheme said on Wednesday.

Launched as part of a broader economic stimulus package, the car-scrapping bonus for any car at least nine years old was initially to be limited to 600,000 applicants, about one fifth of Germany's normal annual car sales.

It has had an immediate impact on sales, which jumped 21.5 percent in February, bucking a downturn that has seen huge falls elsewhere in Europe and prompting other countries to consider similar schemes.

German Chancellor Angela Merkel and her coalition partner Foreign Minister Frank-Walter Steinmeier have agreed to extend the programme until the end of the year but details of the extension have not been finalised.

Germany has been badly hit by the global slump and the economy is expected to contract by much more than the current forecast of 2.25 percent this year.


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