UPDATE 1-Germany agrees big boost in car subsidy scheme

Tue Apr 7, 2009 8:05pm BST

    * Funds for car scrapping subsidy more than tripled 
    * Incentives to run until end of year at latest 
    * Scheme boosted German car sales 40 percent in March 
     
    (Adds quotes, background) 
    By Matthias Sobolewski 
    BERLIN, April 7 (Reuters) - German Chancellor Angela 
Merkel's coalition has agreed to boost subsidies for consumers 
who trade in their old cars for new ones to 5 billion euros 
($6.77 billion) from 1.5 billion, a government spokesman said. 
    Spokesman Ulrich Wilhelm told Reuters on Tuesday after a 
meeting of coalition leaders in the Chancellery, that the 
subsidy plan, which has contributed to a significant rise in new 
car sales, would run until the end of the year at the latest. 
    Merkel's cabinet will meet on Wednesday to formally approve 
the extension. 
    "The subsidy has proven to be an especially successful 
instrument," Wilhelm said. "For this reason the coalition has 
agreed to an extension and an increase in funds." 
    Under the plan, part of government stimulus measures aimed 
at shoring up the economy, owners who trade in cars that are 9 
years old or more for new fuel-efficient models receive a 
government bonus of 2,500 euros. 
    About a million German car owners have applied for the 
incentive, which before the extension could have been awarded to 
a maximum of 600,000 consumers. 
    By more than tripling government funds devoted to the "cash 
for clunkers" scheme, up to two million consumers can now 
benefit from the bonus, which contributed to a 40-percent jump 
in German car sales in March. 
    Some members of Merkel's conservatives had opposed an 
extension on cost grounds and warned that boosting it now would 
only prolong the hangover for an economy that is widely expected 
to post its worst contraction this year since World War Two. 
    Critics have also pointed to negative side-effects of the 
subsidy, including an inadvertent blow to retailers, car repair 
shops and used-car dealers. The scheme has sent scrap metal 
prices into freefall. 
    Small carmakers have benefitted most from the incentive 
plan, while luxury brands, such as Germany's Daimler  
and BMW , have failed to get a big boost. 
    (Reporting by Matthias Sobolewski; Writing by Noah Barkin) 
    ((noah.barkin@reuters.com; +49 30 2888 5091; Reuters 
Messaging: rm://noah.barkin.reuters.com@reuters.net)) 
 ($1=.7389 Euro) 
  Keywords: GERMANY CARS/SUBSIDIES  
    
 
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