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German license plates consist of three parts: A one- to three-letter code for the city or county (see below) and an unique id (per county) for every car consisting of one or two letters and one to four numbers, seperated from the city code by a dash. An exception are cars of local authorities like police or firefighters, which have only numbers behind the dash.

Below and above the dash are small stickers.
The lower sticker contains the federal state's emblem and the name of the county. This sticker means your car's license is valid.
The upper sticker (ASU-Plakette) on the front plate indicates how long your exhaust gas inspection is valid, depending of the age of your car it has to be checked for accordance with anti-pollution laws every one to three years.
The upper sticker (TÜV-Plakette) on the rear plate indicates the next time your car has to be checked for roadworthiness by an federally approved technican. This has to happen every two or three years, once more depending on you car's age.

for example:

LG-PN 43
Was the license plate of my last car.

Short letter/number combinations with one letter and one or two numbers are reserved for vehicles with less space for a licence plate, as motorcylces and U.S. import cars. The format of the plate is kinda like that in this case:

 LG
X 3
meaning the city code is centered above the vehicle id, making the seperating dash obsolete. The two small stickers are on the left and right of the city code.

It should be noted that the license plate stays with the car if you sell it, which means even if you keep your plate when you sell the car (you might want this, as these things are quite expensive), the car registration office will issue exactely this unique id to the new owner if he registers his car in the same county, as opposed to the U.S. system where you keep your plate from car to car. Even if your car gets wrecked or re-registered in another county the id will get blocked for half a year before it will be reused.

Some more information on the city code:
If there is more than one city big enough for a own license plate code starting with the same letter, the larger one gets the 1-digit code, for example: B for Berlin and BC for the small town of Biberach near Ulm (which code is UL, by the way).
After the german reunion in 1990 many new citys had to get license plate codes. As most useful 2-digit codes were already in use (and only few 1- or 2- digit codes were reserved for the GDRs biggest cities) roundabout 66% of ex-GDR codes are 3-digit, so most people, until today, think you are from the eastern germany if you got a car with an unfamiliar 3-digit code.
Pity for the people in the Lahn-Dill-Kreis (Lahn-Dill County), a county on the border between Lower Saxony and Hessen in western germany, who after two countys merged in the late 70s or early 80s got the letter "L" for their plates, promising they had to give it back to the "legal owner" Leipzig in case of a reunion. Noone thought this would ever happen, so a common saying for something that was likely not ever to happen in those area was: Darauf kannst Du bis zur Wiedervereinigung warten! (You'll wait for this till the reunion!). Now we got a reunion and at the same time all the eastern german plates popped up, the inhabitants of the Lahn-Dill-Kreis got shiny new license plates with their new code LDK. "LDK? Oh, so your from the GDR? *grin*"

For your education a complete list of german license plate city codes (copy and paste from uncredited web site, formatting, links and US Army plates inserted by me):
As there are 554 countys and citys with own plates in germany, it will take me some time to complete this list, even the formatting, now as i found out i have to use pipe links, i'll better write me a perl script tomorrow (its 4 o clock in the morning right now), thanks for not downvoting

W	- Wuppertal
WAF	- Warendorf
WAK	- Wartburgkreis
WB	- Wittenberg
WBS	- Worbis
WDA	- Werdau
WE	- Weimar
WEN	- Weiden/Oberpfalz
WES	- Wesel in Mörs
WF	- Wolfenbüttel
WHV	- Wilhelmshaven
WI	- Wiesbaden
WIL	- Bernkastel-Wittlich/Mosel
WIS	- Wismar/Landkreis
WK	- Wittstock
WL	- Harburg in Winsen/Luhe
WLG	- Wolgast/Usedom
WM	- Weilheim-Schongau
WMS	- Wolmirstedt
WN	- Rems-Murr-Kreis in Waiblingen
WND	- St. Wendel
WO	- Worms
WOB	- Wolfsburg
WR	- Wernigerode
WRN	- Waren/Müritz
WSF	- Weißenfels
WST	- Ammerland in Westerstede
WSW	- Weiß(equals ss)wasser
WT	- Waldshut-Tiengen
WTM	- Wittmund
WÜ	- rzburg
WUG	- Weißenburg-Gunzenhausen
WUN	- Wunsiedel
WUR	- Wurzen
WW	- Westerwald in Montabaur
WZL	- Wanzleben
X	- Bundeswehr for Nato Headquarters (German Army)
Y	- Bundeswehr (German Army)
Z	- Zwickauer Land
ZE	- Zerbst
ZI	- Sächsischer Oberlausitzkreis Zittau
ZP	- Zschopau
ZR	- Zeulenroda
ZS	- Zossen
ZW	- Zweibrücken
ZZ	- Zeitz

AF	- US Army (i think it stands for "American Forces")
AD	- US Army ("American District" IMHO)
HK	- US Army (i have no idea what this stands for, Headkwaters???)
The US Army plates were established in the mid-ninetys. Older US vehicles still got US-style army license plates.

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