Auto subsidies: a recent visual history

by SR on July 19, 2012

Netherlands passenger car sales

Subsidies: no free lunch?

I was looking at the recently released European sales data, as you do, when I noticed an unusual movement in sales of passenger cars in the Netherlands. As the chart at the top of the page shows very clearly, June 2012 sales (the red line) spiked to the highest monthly level for at least 7 years and probably much longer. This is an unambiguous anomaly – it turns out that this surge in sales was related to the BPM road tax on electric or highly energy-efficient vehicles, payment of which was not required before 1 July 2012. That exemption has not been closed, but the ceiling level of CO2 emissions is being lowered gradually, resulting in a sharp drop in the number of vehicles eligible for the exemption. Consumers apparently decided to buy ahead of the tightened restrictions.

While such subsidies may prevent the worse declines in demand, it’s debatable whether they do anything to stimulate aggregate demand for vehicles in the medium to long-term. The effect seems in essence to be to smooth the curve of sales rather than to increase the area under the curve. Demand is simply pulled forward. Governments can use such stimulus programs as policy tools to persuade consumers to prefer certain types of vehicle, but the existing fuel taxes in regions such as Europe already do that effectively. Another argument is that such subsidies help to prevent the formation of a Keynesian liquidity trap during times of economic hardship. I’ll leave that for you to ponder.

That’s enough words. The main point is to show how in most cases the impact of subsidies is obvious from a visual inspection of monthly sales. One picture really is worth a thousand words.

United States: cash for clunkers

United States light vehicle sales

Japan: ‘eco-car’ subsidies

Japan auto sales

China: the kitchen sink

In 2009 China had a number of subsidies in place to encourage car demand, some starting earlier in the year and some coming in the second half.

China passenger car sales

Germany: subsidising the foreigner

The original 2009 scheme worth 1.5 billion euros was expanded to 5 billion euros. Most consumers seemed to want to buy smaller, cheaper cars rather than luxury German brands, leading to a temporary fall in market share for German nameplates (see second chart below).

Germany passenger car sales

German auto market, share of German brands

Italy: compressed delivery

Italy passenger car sales

France: targeting CO2 emissions

France initially planned to end its subsidies – which were rather more frugal than those of Germany, and targeted at low-emission vehicles – at the end of 2009. In the autumn the deadline was extended. However, orders placed before this change of heart was announced and before the usual French summer shutdown were delivered and registered in a bulge in September and October 2009.

France passenger car sales

Brazil: sales tax effects

Brazil light vehicle sales

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