Junk cars in a scrapyard in Norderstedt near Hamburg, Germany. (Fabian Bimmer/Associated Press)

Crush your wreck, get a cheque.

The German government is paying people who junk old cars a bonus equivalent to almost $4,000 toward a new, environmentally cleaner vehicle, as part of its $106-billion stimulus plan.

It's getting car shoppers' attention. Abdul Kamand of Frankfurt said the deal looked good as he admired new Volkswagens this week at a Frankfurt dealership.

"I've got a Golf with more than 10 years on its back; the car's old," Kamand said. "Through this I can make a profit. They're giving me more than I'd be able to get for the car if I tried to sell it."

Additionally, Volkswagen AG on Monday unveiled an "Environment Premium Plus" program to provide additional incentives — such as price reductions and cheaper financing — to customers taking advantage of the government bonus. With the added VW incentives, Kamand said he would be able to knock almost $7,200 off the sticker price of close to $32,000.

Owners of cars that are at least nine years old and registered in Germany for at least a year can take advantage through the end of the year.

Scrapyard business booming

The goal is to help Europe's largest economy, struggling with a recession and a rising unemployment rate of 8.3 per cent, by promoting big-ticket consumer purchases and newer, lower-emissions vehicles.

The almost three-week-old program has $2.4 billion worth of bonuses earmarked, but a spokeswoman at the Ministry of the Economy could not say how many applications had been received.

Berlin scrapyard owner Holger Pries said business is up "200, 300 per cent, three times more cars than before."

"And we have reached the limit of our capacity at the moment, everyone at the scrapyard is working overtime," he said.

In the country that is home to major automakers such as Daimler, BMW, Porsche, and Volkswagen, the plan doesn't require the purchase of a German-made car. That has led some critics to predict it will help foreign auto producers more than Germans as consumers look for small, fuel-efficient imports.

But dealers of German brands say they have seen business picking up too.

Bonuses direct deposited

Participants have to have their cars demolished at a government-recognized scrapyard and provide proof of purchase of a new car and two documents from the recycling facility. The Economy Ministry will direct deposit the bonuses in participants' bank accounts, starting in March.

The bonus can be applied to cars that are either brand new, or which are no more than a year old. Many of the year-old cars will be from company lease fleets.

The new cars must at least meet Euro 4 exhaust emissions standards, the strictest current European Union benchmark.

Pros and cons

Not everyone is convinced German Chancellor Angela Merkel's plan is the best for the auto industry or the environment.

Ferdinand Dudenhoeffer, a professor of automotive economics at the University of Gelsenkirchen, said Merkel's move was little more than a political gift to the car market and predicted only 20 per cent of the new cars sold would be from German companies.

"One could say the wreck premium is an economic program for the factories in Italy, France, eastern Europe and Korea. For workers in Germany, the bonus will contribute little," Dudenhoeffer said.

German car companies, including Volkswagen AG, Europe's largest car builder, Daimler AG and BMW AG, have recently reported plummeting sales and production reductions. Sports and luxury carmaker Porsche SE also said last week that the company's sales volume fell more than 25 per cent in the first half of its fiscal year ended January.

Merkel last week defended her government's plan.

"It's good even when a car, produced let's say in France or Spain, is bought, through which the economy there gets back into the swing," Merkel said. "It's our common goal to get all of Europe back on its feet, because in the end, that's good for us," she said.

The German Association of the Automotive Industry, or VDA, stood by the Merkel plan. VDA president Matthias Wissman called it "the right signal at the right time."

"The combination of guarantees ... can now strongly support development on the domestic passenger car market and help companies master the difficult economic situation."

Arndt Sillmann, a salesman at the Audi Zentrum Frankfurt dealership, said that every day customers were coming into the showroom asking about the program.

"At the start, we thought this wouldn't affect premium sales, but we've seen the opposite effect. The resonance is good," Sillmann said.