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German Auto Industry Reacts Positively to CO2 Car Tax Agreement
16 Jun 08
The agreement over the new CO2 car tax regime is likely to boost the German market, despite a delay in introduction until 2010.
Global Insight Perspective | | Significance | The German automotive industry has reacted positively to the news that the German national government and the 16 state governments have agreed a framework for introducing a CO2 emission-based car tax for 2010, a year later than planned. | Implications | The agreement means that the German domestic passenger car market should benefit immediately, as uncertainty regarding the banding system of the CO2 tax matter has been a negative factor on sales since it was announced the government was considering implementing such a system. | Outlook | The early indications are the German government and the country's powerful state governments will implement a system that complements the EU's new regulations to limit passenger car emissions while same time making concessions to the country's powerful car manufacturers' lobby, which represents the likes of BMW, Mercedes-Benz and Porsche that all make higher-emitting vehicles. |
The German car industry has reacted positively to the news that the national government in Berlin and the 16 regional state governments have managed to come to agreement about the implementation of a new CO2-based passenger car taxation system. The new system will solely take into account the CO2 emissions of a passenger car rather than the annual road tax being based on engine size, which was previously the case. However, the new system will be implemented a year later than was originally planned, with 2010 now being the start date, giving the national and state governments time to agree the fine detail of the new system. There have been a number of reasons for the delay, including the finely balanced coalition that comprises the Christian Democrats and the Social Democrats and the negotiations between the national government and the state governments to agree on a new structure for revenue collection. Instead of being paid to the regional governments the new tax will be collected centrally by the government in Berlin. The national government will then reimburse the various state administrations with a figure of approximately 8.9 billion euro (US$13.7 billion) to compensate. The new CO2-based tax system was proposed last year by the German environment minister Sigmar Gabriel, with the intention that it would encourage German carmakers to manufacture cars with lower CO2 emissions, which would in turn make the country's industry better able to cope with the proposed forthcoming European Union (EU)-wide legislation to limit emissions to 120 g/km that will be given a stepped introduction between 2012 and 2015 (see Europe: 10 June 2008: Germany and France Agree Phased-In Euro CO2 Limits). Both BMW and Volkswagen (VW) which in 2007 accounted for a combined total of 42% of the German passenger car market have welcomed the agreement on the tax regime. According to Automotive News Europe a BMW spokesperson said, "The agreement is helpful for three key reasons: the CO2 tax is linear, it differentiates between diesel and petrol vehicles and particularly fuel-efficient vehicles are relieved from paying the tax below a certain level of CO2 emissions." However, although there has only so far been limited detail on the extent of the new regulations it appears that the German government has stopped short of penalising high-emitting older cars. Penalising these vehicles would have been an effective way of lowering emissions but would have caused political uproar. Noting this fact a VW spokesperson said, "That would have suited us as well as been naturally beneficial for the environment. But we are also keenly aware of the social aspect, since older cars tend to be owned by less affluent individuals." However, non-German automakers are less happy with the new regulations, especially with the decision to delay their introduction by a year. Members of the Association of International Motor Vehicle Manufacturers (VDIK) tend to make cars with lower emissions than the domestic carmakers, while they are also more dependent on retail sales. VDIK President Volker Lange said, "The only positive aspect is the end of the struggle between the federal and state governments. I expressly regret postponing the changeover of the car tax. There are then no incentives to buy lower-emission vehicles." Outlook and Implications The proposals have been welcomed by the German carmakers as it removes the uncertainty in the domestic market over the future regulatory structure. This uncertainty has had a particular effect on retail car purchases by private customers which according to data published by Automotive News Europe, fell to just 38% in 2007 which is a significant slump on the figure of around 50% which has been consistent in recent years. The manufacturers have long argued that consumers who were actively looking to save on annual car taxes by buying vehicles emit lower levels of CO2 have been put off making a buying decision as long as it remained unclear which cars would actually fall into that category in the new system. The United Kingdom has recently introduced a CO2-based system for road tax charging, which has generally been received positively. However, despite omitting cars registered prior to 31 March 2000, the banding structure has been criticised for hitting those with older mainstream passenger cars built just after that date, some of which are in the upper tax bracket which costs £400 (US$779) for 12 months road tax. However, while no system will be perfect they are a positive move towards lowering the CO2 emissions of the wider vehicle parc, and will encourage Europe's carmakers to develop vehicle ranges capable of meeting the wider EU CO2 targets which will start to be implemented from 2012.
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