The recent cash for clunkers program was not a novel idea. It wasn’t the brainchild of some bright young congressman. It originated in Germany. The lawmakers didn’t study the plan there or they would not have run the budget out in two weeks. Now might be a good time to study what may follow the cash for clunkers in Germany. The German plan expires this fall after running through the budget of $7.15 billion dollars or 5 billion Euros.
A German management consultant, Roland Berger, did a study to describe what comes next.
Berger says car sales in Germany may fall more than 20% next year and predicts 90,000 jobs may be lost across the industry by the end of 2011. He has been involved in the German auto industry for years and is considered the foremost expert in that business in Germany.
Basically, the study concludes the program cannibalized sales that would have occurred in 2010. A 20% drop in sales in 2010 would create a big unemployment problem and cause a huge build in new car inventories, and cause the possible fallout of 50% of the car dealerships in Germany.
Is this what we will face here in 2010? Car manufacturers are building up inventories, calling back workers, reopening plants. Spending money they don’t have anticipating demand will snap back. Rebuilding depleted inventories expecting sales next year.
If the German study is right, sales will drop more than the precash for clunkers level, which was dismal, and this flurry of activity will create next year’s problems for the auto industry.
We can only hope Herr Berger is wrong since we own two car companies here.
