Good deal?

It has been a bumper year for new car sales in Germany with some 3.8 million cars sold. That's a 25 percent increase over 2008, automotive federation VDA chief Matthias Wissmann said Wednesday.

Germany's cash-for-clunkers program is credited with keeping consumers buying during the recession. The car scrapping program paid consumers 2,500 euros ($3,770) to trade in an old car for a new one.

And many people traded up for a Golf. The mid-priced, fuel-efficient model was chosen by one of every 10 motorists who took advantage of the government program. Volkswagen also locked in the next two places, with its Skoda coming in second and its compact Polo coming in third.

The program didn't only benefit VW. Opel announced this week that its sales in Germany increased by 31 percent for 2009 compared with 2008, much of which was attributed to the cash-for-clunkers program

How low can they go?

Yet the cash-for-clunkers program, which cost the government about five billion euros, ended in September. The government announced that it has no plans to renew it. That makes the prognosis for 2010 “dreadful,” according to leading German auto industry expert Ferdinand Dudenhoeffer.

Plenty of people pushed up new car purchases to take advantage of the government rebate. The rest aren't likely to buy unless they are offered deals too good to refuse. In order to make sales, dealers could drop prices by as much as 20 to 35 percent, NordLB analyst Frank Schwope told Reuters. But this type of a price drop would decimate profit margins.

And even sharp price decreases probably won't be enough to boost sales. The auto industry expects to sell between 2.75 and 3 million cars in Germany next year, Germany's automotive federation has predicted.

Dudenhoeffer predicts that Volkswagen will see its domestic sales drop by nearly 30 percent while Opel will see a 26 percent drop. All told, he expects sales in Germany to decrease by 25.8 percent compared with 2009.

Looking to foreign markets

Volkswagen expects domestic sales to stagnate next year. But it hopes to cash in on developing markets such as China, Brazil, India and possibly Russia.

"I am counting on one or two million more cars being sold in our industry than this year," VW head Martin Winterkorn said just before Christmas.

Yet Winterkorn notes that the smaller profit margins in such markets means revenues will remain low.

"That is why 2010 will be a pretty tough year," he said.

th/dpa/APD/Reuters/AFP

Editor: Susan Houlton