German Car Stimulus Jumpstarts Demand

With global banking bailouts still not working, it's nice to see a rescue plan showing its intended effects: Germany's scrapping bonus, which pays new-car buyers €2,500 to ditch their old banger, has raised sales so fast that companies are struggling to fill orders. Volkswagen just reported its best month since 1990. Ford Germany's sales of small cars like the Fiesta have quadrupled. Even Opel is back from the dead; to meet a five-year sales record last month, the GM subsidiary had to cancel a planned production shutdown.

The program not only helps carmakers tide over the worst market collapse in years. Germany has also avoided many side effects of government money pumping. Of the 430,000 bonus buyers to date, some 80 percent weren't in the market for a new car, says the German Association of Auto Dealers, so the industry isn't hurting its future sales. Instead of giving subsidies directly to automakers—which rewards bad companies and perpetuates overcapacity—the bonus lets customers pick the winners. The Germans have also avoided "buy domestic" clauses; six in 10 purchases are of import brands. The question is what happens when the program reaches its 600,000-car limit, and the industry's excess capacity returns. But for injecting fast liquidity into a zombie market, the bonus is so far unmatched.