The German government's decision to scrap its car-scrapping scheme may save it some cash in the short term, but a new study indicates that it could do serious damage to the country's automobile industry. The report, compiled by Roland Berger Strategy Consultants says the end of the scheme will sound the death knell along the entire automobile industry value chain.
And it is the sales end of the sector that stands to take the hardest blows.
"Once the scrappage bonuses run out, the risk of bankruptcy for German car dealerships is somewhere in the region of 30 to 40 percent," the company said in a press release posted on its Web site.
It says as many as 30,000 jobs in automotive sales alone could disappear with the car scrapping scheme which has proved to be hugely popular with German consumers.
It stresses that although traders will sell more cars in 2009 than in the previous year, the current demand is artificial and will quickly come back to haunt the industry. It says 2010 could see as much as a 25 percent slump in demand.
The report adds that it is mainly the "wrong" dealers that are being hit. "The big dealer groups in particular, those whose investments in the past are suffering under the burden of falling returns."
Under the terms of the car scrapping scheme, the government has offered up to two million subsidies of 2,500 euros ($3,570) for anyone willing to send their old car to the junk yard and buy a new one to replace it.