Should the government give you money to buy a new car?

Back in 1955, the CEO of GM proclaimed that "what is good for General Motors is good for America." Strangely enough, one could argue that what is good for General Motors is also good for Toyota, Ford, and other automakers who, at first glance, would appear to benefit from GM's misfortune.

The reason is simple: many automakers share the same suppliers. If GM were to collapse, parts of the supply chain could also collapse. And that would create major headaches for GM's competitors. It's not surprising, then, that even Toyota has voiced support for bailing out American automakers.

I understand the motivation behind the bailouts. But I question whether the government is channeling money in the right direction.

Consider the facts. People in the U.S. and Canada aren't buying cars. Which means that U.S. automakers aren't making money. Bailouts don't fix that. So why not fix the actual problem, and get Americans and Canadians to start buying again?

The German government seems to have gotten the point. Today, John Leblanc, a blogger for Wheels.ca, posted a story on how the German goverment is offering consumers $4000 to trade in their old vehicles. (To qualify, a vehicle must be at least nine years of age.)

The bottom line? Car sales in Germany have risen 21%, compared to February 2008. In comparison, car sales in the U.S. have fallen 41%.

Is the $4000 incentive solely responsible for the huge gap between Germany and the U.S.? Probably not. But you've got to admit, the approach makes a lot of sense. After all, I'd rather see automakers make money than be handed money.

What about you? Do you think Germany has chosen the better approach? Or is this goverment incentive, like so many others, doomed to backfire?


hp said...

it's true - it's better to help somebody to make money instead of passing the money directly.
I am a german, but I see this thing very ambigious.
This money is titled "Umweltprämie" -> which means something very different. It says the money is to save our enviornment.
So why only support car makers?
Why not supporting installations of new non-polluting heatings?
Germany is country that strongly relies on mid-sized companies and not all of them are car maker suppliers.
Also the 21% is not quite correct, this number is more complex.
there could be said much more that's all for now

Paul N. Leroux said...

Thanks for your comment, hp. I assume that, like all governments, the German government has only so much money to spend. But given that the car industry in
Germany seems to be doing okay, perhaps it would be good to reallocate some of that money to other environmentally friendly initiatives. Everyone is so focused on the car industry these days; they seem to forget that other industries also play a key role in the economy.