Germany Holds Off on Cash-for-Clunkers Plan Until Early June

(Bloomberg) --

Germany postponed a decision on a new cash-for-clunkers program, forcing the country's most important industry to bide its time as car demand tumbles in the fallout from the coronavirus pandemic.

After a video conference on Tuesday between Chancellor Angela Merkel and top executives from the likes of Volkswagen AG, BMW AG and Mercedes-Benz maker Daimler AG, the government and the industry will convene a working group to discuss efforts to revive Europe's largest economy. Results will be presented in early June, according to a statement from Merkel's chief spokesman Steffen Seibert.

The goal of the deliberations will be to promote “innovative technologies,” Seibert said. That suggests the industry's efforts for sales incentives to include profitable diesel vehicles are likely to come up short.

VW Chief Executive Officer Herbert Diess and others have made public appeals for government incentives to purchase new cars, saying it would help suppliers, dealers as well as automakers recover from the coronavirus crisis.

Merkel's administration though has cooled expectations as it considers a broader stimulus package, and some officials have expressed frustration with the industry's push for aid in the aftermath of the diesel-cheating scandal.

The industry does have high-level backers though. Premiers of the states of Bavaria, Baden-Wuerttemberg and Lower Saxony -- homes of BMW, Daimler and VW, respectively -- are supporting a plan to pay a subsidy of 4,000 euros (4,400) for low-emission cars as well as a 1,000-euro scrapping incentive, according to a tweet from Bavarian state leader Markus Soeder, a leading contender to succeed Merkel after her term expires.

Reviving auto demand will be “one of the key questions for the comeback of the German economy,” Lower Saxony Premier Stephan Weil said in an interview with Manager Magazin, calling for more aid for electric cars than diesel vehicles. “Without sales incentives, many people will initially have other things on their minds than buying new cars and other goods.”

Sales across Europe cratered in April, falling by more than 96% in Spain and about 89% in France. While automakers are beginning to reopen factories, VW officials have warned that production could soon stop again if deliveries don't pick up.

Sustainability Shift

The coronavirus crisis is hitting carmakers at a sensitive time. Manufacturers are ramping up spending on electric vehicles to meet tougher emissions regulations and need profits from conventional vehicles to fund those investments.

As unsettled consumers shy away from buying cars, Germany needs to confront reality and support “models currently in serial production,” Thomas Steg, a senior VW official, said in an April 29 web conference with lawmakers.

But after Volkswagen cheated on emissions regulations, the industry faces more headwinds than in the past.

Lars Klingbeil, the general secretary of Germany's Social Democrats, the junior partner in Merkel's coalition, said that carmaker requests to support old technology are a no go. The industry could use past profits to stimulate sales, and any companies tapping aid shouldn't pay dividends to shareholders, he said.

“There are question marks over some of the instruments proposed, and some of the appearances by top managers in the car industry in recent days have not made the discussions easier,” Klingbeil said on Deutschlandfunk radio. “Mistakes have been made in recent years, and now we have to see how we can reorganize the sector toward sustainability.”