VDA – Wissmann: Western Europe’s recovery encourages auto industry

Statement delivered by Matthias Wissmann, President of the German Association of the Automotive Industry (VDA), at the VDA’s press conference in Geneva on Monday, 3 March 2014, at 17.00 h

Ladies and Gentlemen,

it is my pleasure to welcome you most cordially to the VDA’s press conference here at the Geneva Motor Show. This year we have come to Lake Geneva in a very confident mood. We are convinced that the “automotive spring,” that traditionally kicks off with the Geneva Motor Show, will be much more dynamic and lively than it was one year ago. The prospects are obviously brighter. The Western European passenger car market is again picking up speed after a long period of sluggish activity. In January new sales of passenger cars in Western Europe rose by nearly 5 per cent to exceed 897,100 units. That is the fifth monthly increase in succession.

I would like to emphasise two points in particular. All the top five markets are in “growth mode”: Germany recorded a rise of just over 7 per cent, and the United Kingdom and Spain both expanded by around 8 per cent. France is showing growth of almost 1 per cent, while in Italy the figure is a good 3 per cent. It is encouraging to see that also the countries that have been “in crisis” up to now have obviously come through the worst and are improving again. Alongside France, Spain and Italy, double-digit increases for January were seen in particular in Portugal (+32 per cent), Greece (+15 per cent) and Ireland (+33 per cent).

Today we can present the latest figures for Germany: in February new registrations of passenger cars climbed by 4 per cent, to 209,400 units, and in the first two months of this year they increased by 6 per cent, reaching a figure of 415,400 new cars. Incoming orders from the home market rose by 13 per cent, with foreign orders climbing by 8 per cent.

Exports increased by 7 per cent in February to 379,800 units, so growth over the first two months amounted to 9 per cent, putting the total at 723,200 units. New car production in Germany rose in February by 7 per cent to 493,200 units, so a total of 935,600 new cars rolled off the production lines up to the end of February (a rise of 9 per cent).

This good capacity utilisation in production boosted the regular domestic workforce (as of December 2013) to around 761,300 employees, which is nearly 16,000 more than in the same month last year. If we compare today’s employment level with that of December 2010 (704,500 employees), we find that the German automotive industry has expanded its regular workforce within Germany by around 57,000, or 8 per cent, in the space of only three years. The German automotive industry is therefore a motor driving both growth and employment.

Current developments in the ifo business climate index also constitute grounds for optimism. The business climate at the German passenger car manufacturers continued to improve in February (+3.9 points), and is now at its highest level since October 2011. The business climate in the automotive industry as a whole (passenger cars, commercial vehicles and suppliers, plus trailers, bodies and buses) firmed up in February in the boom regions, even though it fell in some individual sub-sectors. This means that the business climate in our industry continues to be better than the mood in processing industries as a whole.

Of course a lot depends on overall economic developments. According to the annual economic report, GDP in Germany will increase by 1.8 per cent in 2014, while consumer demand will rise almost as much – by roughly 1.5 per cent. One crucial requirement for sustainable revival on the domestic market is that the state should not now impose any new burdens on consumers and those paying contributions.

Despite these welcome figures – we are speaking of the first month of the year in relation to the international markets, but of the first two months in connection with the home market – it would therefore be a mistake to estimate results for the entire year simply on the basis of the current trend. We are a long way from bursting into jubilation. All the same, the Western European passenger car market is once again pointing in the right direction – i.e. upwards. We expect the year 2014 as a whole to bring a rise of 2 per cent in Western Europe, to 11.7 million passenger cars. But it should be remembered that this is an initial recovery, and we are not yet speaking of “strong growth.”

What does this mean for the German automotive industry? The German automotive industry takes over 50 per cent of the Western European market. Recent months have already shown that if the automotive demand in Europe increases again, this will benefit the German group brands most of all. And that will also have a positive impact on our domestic production. We expect that 2014 will see growth in passenger car production at home of 2 per cent, to 5.55 million units. Passenger car exports will probably also rise by 2 per cent in 2014, reaching 4.28 million vehicles. Just over three quarters of all cars built in Germany are therefore destined for export.

However, this will not happen by itself. The overall economy will have to stabilise if Europe is to recover. But there are initial indications that this is happening. In all probability, the national economies in the euro zone will grow again during the current year. The forecasts assume growth in GDP of 1 per cent in 2014. We know from experience that if employment rises and consumers regain confidence, they will also be more willing to buy a new car. So we can state that the improving economic situation is providing a boost at the Geneva Motor Show.

In addition to this, it is precisely the German manufacturers, with their numerous premieres, who are emphasising sporty elegance in particular. May I just mention as examples the Audi TT Coupé, the BMW 4-Series Gran Coupé, the Mercedes S-Class Coupé and the new Porsche Macan. The volume segment, too, is showing some exciting innovations such as the new Ford Focus, the Opel ADAM ROCKS and Volkswagen’s Cross Polo and Polo Blue Motion. BMW is now also entering the van segment with its 2-Series Active Tourer (with a three-cylinder engine and front wheel drive). We are sure that the new models presented here in Geneva by the German OEMs will once more underline our international competitiveness – in premium vehicles, in volume vehicles and also in alternative drive trains.

Naturally electric and hybrid drives will be on display here too, with hugely expanding portfolios. Examples are the A3 Sportback e-tron (plug-in hybrid) and the A3 Sportback g-tron (gas-powered), BMW’s i3 and i8, Ford’s Focus Electric and C-MAX Energi, the Mercedes-Benz B-Class Electric Drive, the S 300 BlueTEC HYBRID, the S 500 plug-in hybrid by Mercedes and the smart electric drive coupé. Opel is represented by the Ampera. Porsche is exhibiting its 918 Spyder and the Panamera S E-Hybrid (plug-in hybrid), while Volkswagen is showing – in addition to its e-up! and e-Golf – the Golf GTE, which as a plug-in hybrid has a standard consumption of 1.5 litres over 100 kilometres. The German manufacturers alone will have 16 series models with electric drive on the roads by the end of the year.

Of course the market for electric vehicles is still small in absolute figures – but it is growing strongly. In 2013 nearly 6,100 battery electric vehicles were newly registered in Germany – which is a rise of 105 per cent compared with 2012 (2,956 e-vehicles). The number of plug-in hybrids on our roads also soared by more than one third (35 per cent) in 2013, to 1,655 units. In all that makes over 7,700 new cars with alternative drive trains, i.e. an increase of 84 per cent. Connectivity also continues to make progress, bringing more driver assistance systems, more safety and more comfort.

Interest here in Geneva is naturally focusing on the recovery of the Western European market. But there is also the global passenger car market, which will continue to demonstrate overall growth in 2014 – of 3 per cent to a good 75 million units. China’s market will expand by 7 per cent to break through the 17 million mark, while US light vehicle sales will increase by 3 per cent to almost 16 million vehicles. Modest single-digit increases will be seen in India (+2 per cent), Russia (+3 per cent) and Brazil (+2 per cent).

The German automotive industry is in a good global position. It consistently drove forward the establishment and expansion of its international sites at an early stage. It will produce nearly 14.7 million passenger cars world-wide in 2014 (+4 per cent), with foreign assembly accounting for a little over 9.1 million of them (+6 per cent). Our share of the total global passenger car market comes to almost 20 per cent, and among premium vehicles it is nearly 80 per cent world-wide.

The “two-pillar strategy,” i.e. exports from Germany coupled with local production, is once again proving to be a successful approach. It not only strengthens our presence on the growth markets, but also safeguards jobs in Germany. The German supply companies also have a global presence of their own, with production sites around the world. They follow the German manufacturers onto the markets abroad – and also tap into customer potential among foreign manufacturers. Add to this exports from Germany.

However, there are increasing signs of more and more pressure on Germany as a production location, especially the suppliers. Therefore no-one should be under the illusion that Germany’s current strength as an industrial location is somehow “natural.” On the contrary, Germany has to work on its competitiveness every single day.

This brings me to the general conditions. And here there is certainly some cause for concern. Germany needs a smart industrial-location policy boosting the companies’ drive for innovation and investment, and which does not weaken industry or the SMEs. I would like to stress three points here, which are in especially urgent need of attention: We need affordable energy, we have worries about the development in unit labour costs, and we need the labour market to remain flexible.

Our electricity prices are in some cases two or three times those in neighbouring countries or in the USA, due to the state-imposed burdens and the EEG promotion [under the German renewable energies act] that has got out of control. Everyone agrees that the German renewable energies act needs urgent reform. It is not very convincing to increase the costs to industry for generating its own power – for the purpose of this reform. Not only the energy-intensive enterprises now have their own power plants, but so do other sectors such as the automotive industry. This electricity production is highly efficient, because the waste heat can simultaneously be used for production. It offers the firms security of supply and eases the situation in Germany to a certain extent. Almost without exception, our companies pay the full renewable energy levy on electricity that they buy in. That is why there must not be any more burdens in association with producing one’s own electricity. The continually rising energy costs in Germany have already resulted in many investments being put on hold.

Any location’s international competitiveness is influenced by factors including not only the energy costs, but also very much by developments in unit labour costs. In the period from 2005 to 2012 unit labour costs increased markedly in real terms in countries such as France and Italy, while Germany’s unit labour costs remained almost unchanged during this period. Yet this competitive advantage does not mean that we can sit back and relax. In 2012 unit labour costs rose again in Germany, too. If we want to maintain our high share of industrial value-added in Germany in the medium term, we will have to keep both energy prices and labour costs under control.

Please allow me to summarise. We have come to Geneva in a confident mood. The Western European market will expand again in 2014 after a long period of sluggish activity. China and the US market will continue to grow. The global passenger car market will increase to 75 million this year. Here in Geneva our manufacturers have exciting innovations on display – in the premium and volume segments, and among both classical and alternative drive trains. All of this creates promising conditions for a successful automotive year 2014. However, we must all make sure that Germany remains competitive as an industrial location. This will require reasonable energy costs and a watchful eye on developments in unit labour costs.

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