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Study condemns Germany's car scrapping scheme as waste

db/tt, dpa/APMay 3, 2009

Researchers claim that Germany's car scrappage scheme - offering a government cash handout to everyone who trades in an old car for a new model - is wasteful because most claimants would have bought a new car anyway.

advertisement, two tilted cars and sign that reads: "environmental premium 2500.-"
The bonus is meant to soften the impact of the recession and promote greener carsImage: AP

The Welt am Sonntag newspaper quoted a study by the Halle Economic Research Institute (IWH) that said three out every four people who bought a new car and pocketed the bonus were intending to buy a new vehicle even without the handout.

According to the institute, out of the expected 2 million subsidized car sales, 1.5 million would have happened anyway. The IWH said the car scrapping incentive could burden the federal budget with 2,6 billion euros ($3,5 billion).

Under the popular scheme, the government offers a 2,500-euro bonus to anyone who puts a car 9 years or older in the crusher and buys a new one.

Dirk Niebel, secretary-general of the business-friendly Free Democratic Party (FDP), called the incentive "expensive junk." The Berlin government, he told Welt am Sonntag, let itself be pushed into an expensive subsidy program by the automobile industry.

But the Finance Ministry in Berlin defended the project.

"The idea was for somebody who needs a new car to buy it now and not wait till next year," a spokesman said on Sunday.

Germany earmarked 5 billion euros to fund the anti-recession program. Similar car scrappage shemes have been introduced in several European countries, including France, Italy and the United Kingdom.