Photographer: Jin Lee/Bloomberg

Merkel's Next Coalition Spat Involves Electric Cars

  • Vice Chancellor Gabriel proposing incentives to increase sales
  • Schaeuble against using government funding to boost demand

Chancellor Angela Merkel finds herself in the middle of another spat within her governing coalition, and this time it’s over two topics near-and-dear to Germans’ hearts: cars and fiscal discipline.

QuickTake Cleaner Cars

With the government’s goal of 1 million electric vehicles on German streets by 2020 slipping away, Vice Chancellor Sigmar Gabriel wants to shell out about 2 billion euros ($2.2 billion) in incentives to offset the higher price of the environmentally friendly cars for his autobahn-loving countrymen. Finance Minister Wolfgang Schaeuble is dead set against it.

“To get the market to grow noticeably, we need incentives for buyers,” Matthias Wissmann, head of German automobile industry group VDA, said in a statement to Bloomberg. “The politicians must urgently provide the right impulses.”

Merkel, who is searching for a compromise between the two ministers that’s likely to include incentives and tax breaks, will meet with Daimler AG Chief Executive Officer Dieter Zetsche, Volkswagen AG CEO Matthias Mueller and BMW AG CEO Harald Krueger on Tuesday to discuss how they can move forward, according to a government official familiar with the planning. The chancellor is also keen to avoid another rupture with her coalition partners after negotiating a deal last week to end a spat over the refugee crisis.

Merkel, who is currently far off from reaching her target, is aiming to keep the country’s auto industry -- home to Mercedes-Benz, Audi, Porsche, VW and BMW -- globally competitive. In total, just over 30,000 electric cars had been registered in Germany, which has historically leaned on diesel technology to reduce emissions. Other countries such as France, Norway and the U.S. have had greater success with electrics because of the rebates and tax breaks they offer. Last year alone, nearly 26,000 electric cars were sold in much smaller Norway.

“Clearly any policy change by Germany will likely have an impact not only on local sales and domestic manufacturers but also the broader industry,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in a note to clients on Monday.

Offering Incentives

Gabriel’s solution is to follow the path of other countries and offer about 5,000 euros in incentives per car through 2020 to get the ball rolling.

“If we don’t get the market going here, then the vehicles will remain expensive,” Gabriel -- who heads Merkel’s junior coalition partner, the Social Democrats -- said last month. “We won’t get here in Germany what we want, namely the industrial battery production.”

Bavarian Premier Horst Seehofer, whose state is home to Audi and BMW, emerged as an ally last week when came out in support of such a program as well. Seehofer, who heads the Bavarian sister party to Merkel’s Christian Democratic Union, has been the chancellor’s chief antagonist in the coalition’s dispute over migrants, threatening a lawsuit if he didn’t get his way.

Helping Hand

“Sometimes you need to give the business a helping hand,” Seehofer said in Friday regarding incentives. “We want a key technology that will make Germany, which is in a brutal competition with the global automobile industry, fit for the future.”

Gabriel and Seehofer pitched Merkel on supporting incentives during three-way talks they held last Thursday to discuss the influx of asylum seekers. Not present in the discussions was Schaeuble, who as finance minister has his hands on the government’s purse strings and who has helped Merkel maintain control by tamping down a rebellion within their CDU party over refugees.

With the government planning to provide billions of euros to care for the more than 1 million asylum seekers who poured into the country last year, Schaeuble has come out against spending money to essentially entice people to buy more expensive cars. The finance minister, who is Germany’s most popular politician, says the government should focus instead on expanding the infrastructure needed to fuel the vehicles. The country currently has about 5,600 charging plugs, according to the VDA.

“In other matters, the auto industry exhorts us to always respect the principles of a market economy,” Schaeuble said last week in an interview with a Stuttgart newspaper. “It’s not the role of the government to help sell cars.”

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