German diesel rebates to lure 1.3m drivers

Car owners set to accept rebates of as much as RM50,218 per car from VW, Daimler, BMW

MUNICH • Germany’s effort to clean up diesel’s dirty image by getting older, more polluting models off the road is likely to spur a rush for trade-in deals from the country’s automakers.

As many as 1.3 million German car owners are set to accept rebates of as much as €10,000 (RM50,218) per car from Volkswagen AG (VW), Daimler AG and BMW AG in a cash grab reminiscent of the government’s 2009 cashfor-clunkers programme.

While that will jolt demand, it could still leave more than five million diesel autos with outdated emissions systems on German roads.

Manufacturers, including Ford Motor Co, are targeting rebates at drivers of diesel autos delivered before the end of 2010, which currently number about 6.4 million vehicles in Germany. Intended to encourage purchases of cars meeting the latest pollution regulations, the incentives are the result of an agreement with the government last week aimed at preventing a crackdown on the fuel.

As many as 20% of owners of vehicles complying with now-outdated Euro 1 to Euro 4 emissions standards could take up the carmakers’ offer, according to consulting firm Oliver Wyman.

“This rebate programme is an important element in the plan to get older polluting cars off the road and improve diesel’s image,” said August Joas, head of Oliver Wyman’s global automotive practice. “The cars eligible for the rebate will be quite old. So, for people considering the programme, the jump to buying a new vehicle will still be significant.”

Real exhaust emissions from diesel vehicles often far exceed what’s measured in lab conditions, making some customers hesitant about the fuel after VW’s test-cheating scandal brought the issue to light. Even so, demand for the models in Germany has only narrowed rather than collapsed. Diesel cars accounted for 41% of total auto sales in July, compared to 46% for all of last year. Institutional buyers including corporate, government and rental fleet operators, which make up two-thirds of Germany’s annual car demand, have been slow to react to the barrage of criticism facing the technology.

“We do notice that our fleet customers are considering which type of engine is best amid the current discussion on emissions manipulation and driving bans,”

Sixt Leasing SE spokesman Stefan Kraus said. “But because of the low cost of ownership of diesel cars and great mileage, the majority of orders remains for diesel engines.”

For the trade-in programme, manufacturers will bear the cost of the incentives, with VW affected to the tune of €400 million to €1.2 billion, according to Evercore ISI. At the same time, the programme is set to help carmakers’ bottom line by boosting demand for pricey new models.

Trade ins of just under 1.3 million autos would equate to 38% of last year’s new-car sales in Germany, which amounted to 3.35 million vehicles. That puts the diesel plan in a similar league to a government-paid cash-forclunkers programme in 2009, when a rebate of €2,500 prompted owners of two million cars nine years or older to turn them in and buy new vehicles. That incentive ended once spending reached €5 billion.

The incentives proposed this month are available until the end of the year, though vary significantly between the automakers. VW will pay drivers €2,000 to buy a new VW Up! small car and €10,000 on purchases of VW Touareg or Q7 SUVs from its Audi brand, including the value of the used car. Meanwhile, Daimler’s Mercedes-Benz nameplate and BMW are offering €2,000 on top of the trade-in value.

Carmakers are using the programme to push sales of mixed combustion engineelectric or battery-powered models with additional incentives. Audi will double its share in an existing greencar bonus, offering an extra €1,500 incentive on the purchase of a plug-in hybrid.

“Back in 2009, people queued around the block to trade in their cars,” and “we expect as many as a third of these owners to take up the bonus scheme,” said Juergen Karpinski, MD of Frankfurt’s Autoschmitt dealership. “We’re really glad to finally have a deal on diesel on the table and get back to a factual discussion about the technology. Consumer uncertainty on the issue is enormous.” — Bloomberg