In its annual “state of the nation” address at its January press conference, the German automotive trade association, the VDA, pronounced itself reasonably satisfied with the performance of Germany’s automotive sector in 2000. Although both the car and commercial vehicle markets and production in Germany fell during 2000 (and they seem likely to fall again in 2001), export volumes rose, as did production by German brands outside Germany.

Germany is the biggest vehicle producer in western Europe

Even so, the country retains its status as the biggest vehicle producer in Europe, with over 32% of regional vehicle production, down slightly on its 33.7% share in 1999. One of the reasons for this fall is that 2000 saw a reduction in the volume and value of parts supplied by Volkswagen Germany to its operations in Belgium and Slovakia – previously the VW vehicles made in these countries counted as German production as they had 60% German content. As German content has now fallen below this level, they are treated as overseas production.

Taking into account the overseas operations of the German vehicle makers, total production by the German VMs rose 5% to around 9.7mn cars and nearly 3.1mn commercial vehicles. According to the VDA, German vehicle makers accounted for around 22% of world vehicle production last year. Furthermore, German vehicle makers have increased their non-domestic production volumes, building 4.2mn vehicles outside Germany, equivalent to 33% of their total production.

Rising total production for German brands

While domestic market has fallen, demand for German-branded cars – whether for domestic or overseas produced vehicles – has been kept buoyant by demand outside Germany which rose 5%, compared to a 6% fall in domestic demand for German makes; total German car sales in fact fell around 11% in 2000. Indeed, were it not for rising production outside Germany and continued demand for top-of-the-range German cars, with the “Made in Germany” badge, the falling new car market would have had a serious affect on German vehicle makers’ prospects. Indeed, German brands’ sales fell 10.6% in 2000, while those of the imported brands fell 12.4%. The Japanese held onto their 10.8% stake in the market, while the French brands lost a little, falling 0.4% to 10.4%

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One specific area which saw particularly buoyant demand was in diesel-powered cars, which saw an 11% increase in output in 2000; diesels now represent around 35% of total passenger car production, compared to 21% in 1995.

Weakness due to a number of factors

Thus, while the supply side remains buoyant and vehicle makers continue to expand globally, the domestic market is showing some signs of weakness, caused partly by the high stock of fairly young used cars and an increase in fuel prices; the export of used cars into Eastern Europe was down 60% on 1999 levels, leading to an increase in the used car stock. Looking at the year ahead, it seems reasonable to expect some further decline, partly because of the continued impact of fuel price and insurance cost increases (see below); in addition, there will certainly be some knock-on effect in Europe as a whole from the slowdown in the US economy.

Rising costs of motoring..

Fuel taxes are seen as having acted as a significant brake on new car sales – during 2000, fuel prices in Germany rose by 19%, with a new “eco-tax” largely to blame. Indeed, in a situation not entirely unlike that prevailing in the UK, taxes now account for more than 70% of the German pump price. This was a major factor in the increased cost of motoring rising by more than 6% in Germany last year, compared to a rise in the overall cost of living of just under 2% – other than fuel prices, the main contributors to this overall cost price were insurance premia (which rose 8.3% on average) and a 2.3% increase in the annual vehicle tax.

..but there is still a growing number of vehicles on the road

Despite these costs, the demand for personal mobility appears to continue grow, if not entirely unabated, at least somewhat unabashed. The number of cars on the road in Germany – the car parc – rose 2.5% to 43.5mn (1999 = 42.4mn units), although the VDA does admit that some of this increase is due to a distortion caused by the registrations authorities delaying the de-registering of vehicles. In parallel, the car density also increased, from 516 cars per 1000 of population to 529 per 1000. By contrast the commercial vehicle parc rose from 3.37mn to 3.5mn units, a rise of 3.9%, reflecting both the buoyancy of the commercial vehicle market and the longer working lives of some of the vehicles on the road.

The automotive industry represents an important element in the German economy

In money terms, the value of total automotive industry sales amounted to DM368bn, equal to a 9% increase on the year before; foreign sales amounted to DM216bn, or 59% of the value of German automotive industry sales. The VDA specifically notes how the automotive sector represented around 17% of the German economy and contributed over DM120bn to the trade surplus. Furthermore, employment in the sector continues to grow, with the total employed in the sector now over 750,000, of which 55% – or 416,000 – were in the vehicle and engine manufacturing and 302,000 in the components supply sector.

Domestic brands continue to dominate the market.

Despite the downturn in the fortunes of some brands, the continued preference of German consumers for their own brands continues. Indeed, the top 15 selling models in Germany last year were all German brands, with only the Opel Corsa (at no.8) made outside Germany. As noted in table 4 below, several of these models are now nearing the time when they will be replaced or undergo a major facelift – this helps to explain some of these models’ decline. The decline of the Astra is also compensated for by the appearance at no.15 of the Zafira – expect this model to be significantly higher in this year’s numbers.

Germany slowly accepts diesels

As noted above, the German market has also seen a steady shift towards diesels; petrol-engined cars fell by 25% in 2000, while diesels rose by 20%, to more than 1mn units, representing over 30% of the market for the first time. Diesel fuel still enjoys a modest price advantage over petrol, but the main reasons behind the switch are a combination of better fuel-efficiency and the steady reduction in consumers’ scepticism regarding the performance and image of a diesel-powered car; marketing efforts by VW-Audi and BMW in particular have made diesels, if not “cool”, then at least much less unfashionable than they have been in the past.

As a result, Germany is now closer than it has been for many years to the European average for diesel penetration, which stands at 32%. However diesel penetration here is still significantly below the diesel penetration in Austria (62%), Belgium (57%) and Spain (54%). In terms of the kinds of vehicles sold in Germany, the passenger car market continues its steady move towards niche vehicles – defined by the VDA as encompassing SUVs, MPV’s and sports cars/cabriolets – which in total represented 13% of the 2000 market, a rise of c2% on 1999. Small cars, ie those in the Fiesta/Corsa size range saw their share rise c1% to 17%, while those in the Astra/Focus and Mondeo/Vectra segments actually saw a fall of around 6-7% in total, although together these traditional segments still represent over half of the car market in Germany.

Exports are crucial for the continued health of the industry as a whole

In the face of sluggish domestic demand, the export performance of the vehicle-manufacturing sector assumes greater significance. Passenger car exports rose 1% to 3.5 million, with diesels accounting for over 31%, a 5% rise. The weak Euro helped push exports to the USA up to almost 0.5 million, giving the German brands a share of nearly 9%, including models made in the USA (eg the M-class from Mercedes-Benz and the Z3 and X5 from BMW) or made outside Germany, but sold in the US (ie including the VW Beetle from Mexico).

The destination of German brands’ passenger cars, by country or region, is shown in the following table/chart (as you wish!!). Unsurprisingly western Europe dominates, accounting for almost 2/3 of exports.

On the edge of Europe, indeed knocking on the EU’s door with increasing loudness, is Turkey which accounted for 3% of German car exports, amounting to 119,000. The VDA, interestingly, classifies Turkey as the second most important Asian market for German manufacturers, behind Japan. Eastern Europe itself represented around 4% of the total exports.

The VDA was also particularly keen to emphasise the exports to Latin America – which reached over 63,000 units, not an especially significant volume on its own it has to be said. However, in fairness, it should be added that Latin American demand has traditionally been supplied out of local production facilities, which have seen major investment in recent years from VW/Audi, Ford and indeed Mercedes-Benz; the latter’s investment in the region mainly took place prior to the DaimlerChrysler merger and the recent travails affecting DaimlerChrysler there (the Dodge pick-up plant – and others – have been put on temporary shutdowns). Local production by German brands in Latin America in 2000 actually climbed above 931,000 units.

Exports to Japan remain modest and like the other European – and indeed US – brands, the German brands are still seen as niche or speciality vehicles as a whole in Japan. The 4% rise in exports to Japan – to 123,000 units – is, given the less than open nature of the Japanese sales and distribution structure, a reasonable performance. However, whether the vehicle makers will be satisfied with this small presence in Japan in the long run remains to be seen – as does exactly what they can or will do to break the Japanese brands’ stranglehold on their own market.

In terms of the different export performances of each vehicle maker, VW remains the largest exporter, even though its share exports fell in 2000 – due in part to the re-classification of VW models made in Belgium and Slovakia which were previously regarded as German production (and hence were counted as exports when they were sold!). As the following table shows, all the other German manufacturers saw their car exports rise by between 4.5% (DaimlerChrysler) and 9.1% (Porsche).

A better performance from commercial vehicles

The German CV market performed better than the passenger car sector. The overall market itself fell back 3% (compared to an 11% fall in the car market), but exports were up by 13%, with the result that production volumes actually rose by over 4% during 2000.

The commercial vehicle market totalled 315,000 units, of which around 189,000 were light trucks or vans, under 6 tonnes GVW (gross vehicle weight). The domestic brands suffered somewhat under the continued attack from the French brands (Renault, Peugeot and Citroen) all of which have a range of modern, small vans (Kangoo, Berlingo/Partner) which are popular across Europe as a whole, and not just in Germany. It is notable that Mercedes-Benz will soon add a version of its own A-class (the Vaneo) which will compete directly against these models, at least in terms of functionality, if not in price. The Italian brands (Fiat and Iveco) are also strong players in the market, with an 18% share, actually ahead of the French brands (14%). Having said this, the German brands still hold the majority of the market, with a 57% stake.

As the following chart/table shows, the market has declined across all the segments, except for the miscellaneous, other vehicles segment, accounting a little over 10% of the market.

Export demand grew strongly

However, while domestic demand was somewhat subdued, export demand (ie orders received, although not necessarily all fulfilled) rose, by around 17%, a performance which was apparent across all the segments; indeed the heavy commercial vehicle segment, ie that above 6 tonnes GVW received more than 24% more orders in 2000 than it did in 1999. Exports totalled nearly 268,000, a rise of almost 13% – van exports rose 12% to 160,000, while exports of medium commercial vehicles rose 8% to 25,000. In the heavy vehicle sector, exports were up 14% to 73,000 and bus exports rose 21% to 9,000 units.

In terms of destinations of commercial vehicle exports, western Europe remains the overwhelmingly most significant region, accounting for 80% of exports. Eastern Europe took 6%, Turkey took 6% and the rest of the world took 8%. To some extent the apparently small share of exports accounted for by markets beyond Europe reflects the VM’s own manufacturing presence in some potential export markets, especially South Africa and South America. In addition, we need to consider the fact that the kinds of commercial vehicles sold in North America are rather different to the vehicle types made by the German manufacturers in Europe. That said, DaimlerChrysler may be about to sell – or even make – some Sprinter vans in the USA, so this situation may start to be remedied in the near future.

The rising export volumes more than compensated for the decline in domestic market sales, with 395,000 vehicles built last year – the highest ever. This rise in production occurred in the small and heavy end of the market, but in the 6-16 tonnes GVW segment production fell as MAN shifted the bulk of its production in this size range to Austria. This move was also part of an increase in production by the German brands at the overseas plants, with overseas production rising 2% to 492,000, exceeding production in Germany itself.

Where now for the German automotive sector?

The market for cars – and commercial vehicles – in Germany will almost certainly continue to fall this year, although we would expect it to pick up again in 2002; the CV market is also likely to fall this year (and possibly next) as European economies slow down somewhat, partly as a result of the parallel slowdown in the US. In some respects the slowdown in the car market will also be caused by model cycles as consumers wait for new or revised models to appear. Fuel taxes and insurance cost rises will not go away this year and this too will act to dampen the new car market, and could result in a further segmentation shift – the rising share of the new car market taken by small cars has been noted above and it would not be surprising to see a similar increase this year, especially with the new Corsa now on the market and a new Polo and Fiesta to follow this year. Across the market as a whole, most of the major VMs have new or heavily revised models coming out in the second half of 2001 or soon after and this will have some effect in terms of delaying replacement purchases.

In that light, our forecast for the next 4 years – in production and sales terms – is set out in the following table.

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