Global market still growing – production, exports and employment are stable
Statement by Matthias Wissmann, President of the German Association of the Automotive Industry (VDA) at the VDA’s annual press conference in Berlin on Tuesday, 4 December 2012
Ladies and Gentlemen,
It is my pleasure to welcome you most warmly to our VDA Annual Press Conference. The figures for the first eleven months of this year are now available. We are therefore already in a position to assess the automotive year 2012 and to give you an initial idea of the outlook for the coming year. 2012 was a year of ups and downs for the German automotive industry. Of course we are all feeling the weakness in Western Europe.
Global passenger car market continues growth in 2012
Yet a look at the global markets reveals that the balance for the automotive year 2012 is definitely positive. Outside of Western Europe vehicle business is very dynamic, and the German automotive industry has a disproportionately large share in that. The global passenger car market has also continued to grow in 2012 – by around 4 per cent to a good 68 million units. This dynamic development has been supported above all by the Chinese market, which will expand by 8 per cent to 13.2 million units. The second factor driving growth is the recovering US market, which this year will grow by 12 per cent to 14.3 million units, i.e. is expanding more than China.
This means that since 2010 the volume of the US market has risen by 2.7 million light vehicles and is speeding towards the 15 million mark, which we expect to reach during the next year. It is especially welcome to see that in these automotive “hot spots” German group brands are still growing faster than their competitors. For example, in China we have increased our market share for the first ten months of the current year to 22 per cent – so more than one new car in five sold in that country now bears a German badge. In the USA we have been expanding faster than the market itself for seven years in a row.
This is also shown by the latest figures from the USA. The German manufacturers pushed up their sales of light vehicles (passenger cars and light trucks) in November by over 28 per cent, while the market as a whole expanded by nearly 15 per cent, to 1.14 million units.
We are expanding very rapidly both in the passenger car segment (+28 per cent) and in the light truck segment (+29 per cent). In the first eleven months of this year our OEMs increased their light vehicle sales in the USA by almost 21 per cent to 1.13 million units, whereas the overall market grew by 14 per cent to 13.1 million new vehicles.
We have recorded increases in other regions, too. Our share of the global passenger car market comes to around one fifth. However, we must also take account of the fact that not all manufacturers are present on all markets. Those concentrating mainly on the Western European market will of course notice the weak demand there quite strongly. I will come back to this shortly.
In addition to the global orientation, above all it is the consistent premium strategy that makes the German automotive industry successful. In the premium sector, German OEMs take an 80 per cent share of the world market. This also benefits domestic production. In the last ten years, the share of domestic production accounted for by premium vehicles has climbed from 48 per cent to 57 per cent. At our vehicle-makers alone, more than half of our jobs in Germany depend on premium. Add to this the many employees at our suppliers working in premium.
Western Europe remains difficult
Interest naturally focuses on the difficult situation in Western Europe. In 2012 the Western European passenger car market is expected to shrink 9 per cent to 11.7 million units. That is over one million cars less than one year ago. In a three year comparison – that is, against the volume of 13.6 million units in the year 2009 – the Western European car market has decreased by almost 2 million vehicles. No one can be satisfied with the current level.
Developments are especially dramatic in Italy, Spain and France. This year Italy will record nearly 1.4 million new registrations, putting this important market at around 900,000 units below its long-term average.
In Spain we expect almost 700,000 new cars in 2012 – which represents a fall of nearly one million cars compared with the year 2007. The French market will lose about 13 per cent in 2012 and reach a volume of 1.9 million new cars – 400,000 fewer new registrations than in 2009.
Domestic passenger car market comes to 3.1 million new registrations in 2012
The trend on the German market should be assessed against this background, as to date it has proven to be a rock of stability within Western Europe. Up to the end of November around 2.9 million passenger cars were newly registered, which is a drop of 2 per cent.
New passenger car registrations at home will come to around 3.1 million units over the year 2012 as a whole. This corresponds to a moderate fall of approx. 2 per cent compared with last year’s figure (3.17 million units).
Even if we are generally stable in comparison with the overall development in Western Europe, we cannot be satisfied with this market result. This is because the underlying economic data do not provide any clear explanation of why the German market is so sluggish. Employment in Germany remains high, earning prospects are still good, and yet consumer spending is tending to fall.
Private customers feel insecure
However, the public obviously feels insecure and is therefore hesitant about buying new cars. This is clearly demonstrated by the fact that the proportion of new registrations going to private customers has been falling continuously for the past three years – from 43 per cent in 2010, to 41 per cent in 2011, and to only just under 39 per cent this year (all figures for January to October). Up to the middle of the last decade this share exceeded 45 per cent.
Apparently the old adage is more applicable than ever: half of doing business is psychology.
The state debt crises in the euro zone have been dominating the headlines for over two years now. This never-ending topic depresses the mood and generates a wait-and-see attitude. People who are confronted at breakfast day in, day out, with the question of whether this or that EU country can still pay its debts – and what the corresponding rescue measures might mean for German taxpayers – are not going to hive off to their local car dealer in the afternoon full of eager anticipation about buying a new car.
High fuel prices
Of course, the high fuel prices are also holding things back. Even if the prices at the pumps have eased off somewhat at the moment – under the bottom line according to the Federal Statistical Office the rate of inflation for fuels is running at 6 per cent this year so far after hikes of 11 per cent in each of the years 2011 and 2010.
By contrast, the prices of new cars have practically not gone up this year at all, according to the car cost index (+0.6 per cent). And over the long term, too, the price rises are not by any means due to new vehicles, but principally to fuel costs. Furthermore, all the new models consume less fuel than their predecessors did, which would actually encourage people to buy new vehicles.
The overall environment – severe falls in other Western European countries and reticence among private customers at home – has been stoking the pressure in the vehicle trade. The main reason for this is that the volumes which were destined for other European markets are now forcing their way onto the relatively stable German market. The domestic passenger car market is currently not a seller’s market, and pressure on prices is correspondingly high.
Robust business in company cars
The weak market for private sales renders commercial registrations, which account for a good 60 per cent of new registrations, ever more important for the domestic market. Commercial registrations include manufacturers’ and dealers’ registrations, renting/leasing, and the company car segment.
This year somewhat more than 30 per cent of new passenger car registrations have been company cars. The figure is around 1 million units. We expect to see slight growth (of 1 per cent) in this sector, which will make a key contribution to stabilising the market. Incidentally, company cars are by no means all luxury saloons. Luxury cars make up only 1.5 per cent of all company cars.
Nearly two thirds of all company cars are to be found in the lower categories, ranging from small cars to the medium segment. The most important segment is the compact cars: one in four company cars is a VW Golf, an Opel Astra, a Ford Focus, a BMW 1-Series, an Audi A3 or a Mercedes A-Class.
More than one fifth of company cars belongs to the medium segment, where the “evergreens” used in customer services dominate. Most of these cars are economical clean diesels with correspondingly low CO2 emissions. From January to October 2012, CO2 emissions from company cars fell by 3.2 per cent to 143.7 g/km. This value is now only just over 2 grams above the level for new private cars.
Over the past five years, the largest decreases in CO2 have been achieved in company cars. So they are not only an important market segment, but also a crucial leverage point for reducing CO2 emissions.
Domestic passenger car market at around 3 million new registrations in 2013
In view of the uncertainties, all forecasts for the year 2013 are subject to reservations. As we have to assume that the difficult situation in the euro zone will continue in 2013, our forecast for the German passenger car market is also guarded: in 2013 we anticipate a volume of roughly 3 million new registrations.
What are the criteria determining this assessment?
In 2012 we expect to see the overall economic situation in Germany continuing to be fairly stable. The gross domestic product and private consumption will also remain stable. The same applies to the labour market. So, in 2013 we cannot expect the home market to grow, but we do not expect it to collapse, either. The going will be tougher. One thing is certain: the year 2013 will be a demanding one, a year of hard work!
Global passenger car market will reach 70 million mark in 2013
Let us turn out attention to the international markets. The coming year will see automotive growth continuing. We expect that in 2013 the global passenger car market will aim for the 70 million mark.
The growth will again be driven primarily by the USA and China. In 2013 the US market will expand by 5 per cent to 15 million units. The Chinese car market will experience 6 per cent growth in 2013 to around 14 million new cars. In India we expect a rise of 7 per cent to nearly 3 million cars, and a similarly high volume in Russia. However, automotive business in Western Europe will remain difficult. In 2013 we expect the market volume to total 11.4 million new cars – a fall of 3 per cent.
Slight drop in domestic production and exports in 2012
Operating between dynamic developments on the automotive growth markets and the major challenges in Western Europe, the German automotive industry has achieved respectable overall results for 2012. Domestic passenger car production will total almost 5.4 million over the year as a whole. This corresponds to a fall of just over 3 per cent. In recent months in particular, the OEMs have brought production levels down by more than current market demand would actually require. This also helps reduce the existing stocks of passenger cars. Passenger car exports in 2012 will exceed 4.1 million, which is a minor reduction of a little more than 2 per cent.
Foreign passenger car production continues to expand
Foreign passenger car production, which has already exceeded domestic production since 2010, will continue to increase, showing 8 per cent growth during the entire year 2012 to reach 7.7 million units. And this is a conservative estimate.
2013: slight growth in domestic passenger car production and exports
According to current estimates, domestic passenger car production will remain stable in 2013 and climb by a slender 1 per cent to just over 5.4 million units. This is supported by the dynamic growth already mentioned on the non-European markets. Next year exports will also hover around existing levels, showing a small year-on-year rise to 4.15 million units.
Increasing employment and higher sales
The German automotive industry currently employs around 748,700 people (permanent staff). That is 18,700 more jobs than one year ago. The vehicle makers have a workforce of about 424,000 (+14,000), while the suppliers employ 293,600 (+4,400), and the trailer and body manufacturers 31,200 (+300). The number of temporary leased workers also remains high. In October the number of temporary contracts came to nearly 60,000, which was around 10,000 more than last year’s value. However, it has not increased since May. One reason for this is the rising rate at which leased workers are then taken on as permanent employees.
The worsening economic situation is becoming apparent here only very slowly. The working-time accounts of permanent staff are reduced before the numbers of leased staff are cut. In 2013 we expect employment to be stable in our industry. In the first nine months of this year sales in the German automotive industry climbed by just over 3 per cent to around 270 billion euro.
Vehicle manufacturers increased their sales somewhat more strongly (by over 4 per cent) up to the end of September to 211.4 billion euro, while the suppliers (52.1 billion euro) and producers of trailers and bodies (6.3 billion euro) maintained their sales for the first nine months at 2011 levels.
Commercial vehicle business remains tense
Business in commercial vehicles is much more cyclical than the passenger car market, since it follows the situation in investment goods. After keen growth in 2011 (+18 per cent) the domestic market for light commercial vehicles (up to 6 t) has slumped by 5 per cent to 229,000 units. For the coming year we expect a moderate fall of 2 per cent to 224,000 units. A similar development can be seen in heavy commercial vehicles (over 6 t). In 2011 new registrations in Germany rose 21 per cent to exceed 89,000 vehicles, whereas for this year we will have to expect an 11 per cent drop to 79,000 units. For 2013 we anticipate a heavy truck market of around 76,000 (-4 per cent).
The deregulation of long-distance coach services, which is finally being implemented now after over 70 years, is an encouraging sign. It elicited a very positive response from the public even before services could commence. The “most socially beneficial mode of transport” with the best CO2 values will therefore be available to even more people. These are encouraging prospects for our bus manufacturers.
Stable development among makers of trailers and bodies
This year so far, the trailer markets in Western Europe have recorded largely stable development overall, although some figures dipped slightly. The share of the Western European market taken by the German manufacturers of trailers and bodies now exceeds two fifths. However, most recently the trend has weakened. We can feel this in the decreasing number of incoming orders in recent weeks. We assume that production over the entire year will be around 5 per cent below last year’s figure. On the other hand the export markets, in particular Central/Eastern Europe and Russia, are continuing stably. Incoming orders received from abroad this year are 12 per cent up on the 2011 value. This means that they are also supporting the well positioned German trailer manufacturers. For 2013 a “lateral trend” may be expected in Western Europe along with some slight shrinkage in places.
Suppliers successfully maintain their position
The suppliers have also successfully maintained their position despite the economic difficulties. Sales are hovering steadily at the previous year’s level. Current developments on the markets are affecting the German suppliers – and the vehicle manufacturers – to varying degrees. Companies concentrating on the commercial vehicle industry are seeing their sales go down. The same applies to suppliers whose customers are mostly located in Western Europe. Some of these suppliers have announced the introduction of short-time working. Suppliers working primarily for premium customers are relatively better off: capacity utilisation is high, and sales and employment have both improved.
Given such differentiated development, the overall figures for the supply industry are of limited informative value. In the first nine months of the year sales were stable and employment nudged its way up. However, more recently there has been a marked cooling off. Global orientation is paying off also in the supply industry. In recent years many medium-sized enterprises have invested considerable amounts in locations abroad – but without neglecting their sites here at home.
One major focus is of course China. Those who want to be successful suppliers in the future must be present right where the growth is occurring. We commissioned a study of future development in automotive value-added from the consultants Oliver Wyman. The study makes statements about where value-added will be created in the year 2025, and who is making the largest contributions to it. The fact that China is put in first place does not come as a surprise. Yet it is remarkable that Europe will also be able to maintain its position if it remains strong in research and development.
But that is not going to happen by itself, because if the growth regions establish their own automotive industry, the local manufacturers and suppliers will also become stronger, and they will become increasingly active not only in Asia, but also on other markets. The acquisitions by Chinese suppliers in the past two years speak volumes.
For stable framework conditions
I am confident that the German automotive industry – manufacturers and suppliers alike –can maintain and extend their lead in international competition – in Germany, Europe and around the world. It is doing very well in terms of its technological, qualitative and international position. Yet the German automotive industry will only be able to join in the growth of the global vehicle market if the correct framework conditions are in place.
This brings me to the realm of politics.
An industry exporting three out of four cars that it produces in Germany to other countries needs free trade, manageable energy costs, a smart tax policy, and a climate policy that does not strangle the industry’s drive for innovation but instead stimulates it.
Moreover, the economic weakness in the euro zone makes it absolutely essential for Brussels to act and the national governments to align economic-policy levers once again to encourage growth, investment and employment. Europe’s citizens must regain confidence in the capability of this great economic area. This will be possible only if we can boost competitiveness and apply strict budgetary discipline.
For consistent removal of trade barriers
It is good that European politicians have recognised just how necessary it is to remove trade barriers around the globe in order to strengthen Europe as an industrial location. For this reason, more free trade agreements are now being negotiated after the failed efforts to complete the Doha Round. Basically we support this, but we also appeal for focus on the right aspects: Germany and the EU should strive principally for agreements with countries representing economic growth and large future markets. In those areas all trade barriers should be eliminated. We fully expect especially positive effects from an agreement with the USA. We assume that the negotiations will start next spring. Here it is most important that the regulatory obstacles be removed.
This is still a vision. But a common market between the EU and the USA would make up around 40 per cent of the world’s light vehicle market. If we could establish common standards here too, this would have an enormous impact on the “rest of the world.” Furthermore, we need the USA as an ally to continue beating the drum in other countries for the elimination of barriers to market access.
Agreements with the ASEAN countries would also be very important for the European automotive industry, as in some cases import duties of up to 80 per cent still exist. Also the agreement with India ought to be concluded successfully. Here it is important that India open up its market completely over the long term – even if that means having transitional periods. Today India already has an automotive trade surplus (in passenger cars) with Germany.
Unfortunately we note that numerous countries are erecting more obstacles to hinder imports. They intend these artificial trade barriers to protect and increase their domestic production. So here it is no longer solely economic competitive considerations that count, but import duties or so-called non-tariff trade barriers. Protectionist tendencies create artificial structures and endanger efficient industrial locations in Europe and Germany.
A few days ago the European Commission received a mandate from the European Council to negotiate a free trade agreement with Japan. Japan is a major strategic partner of the EU, but it is not a growth market. It is exceptionally hard for OEMs and suppliers from the EU to access the Japanese market, even though Japan does not levy import duties on automotive products. The market share going to importers of passenger cars has been under 5 per cent for many years. Therefore the main focus of the free trade agreement must be the elimination of non-tariff trade barriers. Here we expect the European Commission to be determined at the negotiating table: effective and permanent market access for European manufacturers and suppliers must be ensured.
Unfortunately, the free trade agreement with Mercosur has already been in deadlock for a longer period. Argentina and Brazil are turning increasingly to protectionist measures, with the result that the relationship among the Mercosur countries is becoming more difficult. Brazil has just decided to continue levying on vehicles high additional taxes of up to 30 per cent, which can be reduced only through local value-creation and other criteria such as investments in education and environmental protection. This virtually forces local production and makes imports vastly more expensive.
The situation in Russia is even more noticeable. Here a so-called “recycling fee” was introduced just a few days after the country joined the WTO. Local producers can obtain exemption from this fee – whereas importers have to pay it as soon as goods enter the country. It is so high that in some cases it more than wiped out the reduction in import duties associated with accession to the WTO. The European Commission is currently examining whether this behaviour by Russia is compatible with the WTO rules. We are backing constructive solutions. Russia, too, should recognise that in the medium and long term its industry will generally benefit more from open markets than from artificial protection.
Need for intelligent taxation policy und budget consolidation
Even if Germany’s financial situation cannot be compared with that of certain Southern European EU states, we still have every reason to have a cautious budgetary policy.
It is worrying that in some party programmes the “long arm of taxation” is being stretched out ever more threateningly. It does not matter whether we are talking about income tax, inheritance tax or a wealth tax – all of these cases contain a notion of redistribution presented in a populist fashion which, however, represents a risk to small and medium-sized companies, jeopardising their very existence and with it competitiveness and jobs.
It has taken Germany years to push down its unemployment figures. Politicians would do well to apply an intelligent taxation policy to enhance the industry’s drive for innovation and investment, instead of undermining the existence of industrial and family-run companies. We would also be delighted if the “support for industry” heard in some politicians’ speeches were also backed up with concrete policies.
Keep energy costs competitive
In electricity and energy taxes, Germany as an investment location needs the tax cap due to finish at the end of the year to continue applying to the manufacturing sector. The present draft bill and the Associations Agreement are going in the right direction. It is good that the Bundesrat has now passed the draft bill. However, it is also necessary for energy costs in Germany to remain internationally competitive. Electricity prices in Germany are currently heading in one direction only – upwards. And as for gas prices, we would do well to look at North America – in this field we Europeans have to be very vigilant, otherwise we will end up with a real location disadvantage.
Wealth tax threatens companies’ existence
We are urgently warning against tax burdens on individual firms and business partnerships through the introduction of a wealth tax/levy, or through increasing the top rate of tax. That would damage Germany as an industrial location. An appraisal by the Centre for European Economic Research in Mannheim showed that implementing the reform proposals (of the German Social Democratic Party) in the areas of wealth taxation and income taxation (increasing the withholding tax, and raising and bringing forward the top rate of income tax) would drive up the overall tax burden on medium-sized enterprises (with a balance-sheet total of 125 million euro) by nearly 20 per cent. In the case of small companies (with a balance-sheet total of 4.3 million euro) the increase would be over 14 per cent.
It would be a dangerous path to take, if medium-sized family-run firms were faced with a dramatic rise in taxes affecting their capital substance. That really would eat away at their existence and would put thousands of companies at risk. It would be better to finally abolish the obsolete business tax, which is a special tax, and to modernise corporate taxation as announced.
No further burdens for motorists
Whether you consider refuelling, buying a new car, vehicle insurance, motor vehicle tax, intervals between services or private use of a company car – the state requires motorists to reach deep into their pockets. We long ago reached the limit of what motorists can stand, at over 50 billion euro in taxes and levies annually. Increasing the burden of taxes and levies therefore has to be categorically rejected. This applies to the repeatedly discussed introduction of a passenger car toll, to increasing the tax on diesel fuel, and to a rise in the taxation on private use of company cars.
Instead of bringing in tax hikes, the overall taxation rules should be improved. This applies in particular to the regulations for taxation of electric vehicles.
The extension (just approved) of electric vehicles’ exemption from motor vehicle tax from five years to ten is indeed a first positive signal.
But more has to happen for around 1 million electric vehicles to be on our roads by 2020. And it cannot be welcomed that the compensation for laid down in the German Annual Tax Act (Jahressteuergesetz) 2013 for taxing electric company vehicles has not yet been implemented. Two weeks ago the Bundesrat unfortunately did not approve this law. We appeal to the politicians to reach an agreement as soon as possible.
Long-term CO2 target – revise the Commission’s draft
Please allow me to close with an assessment of the EU’s planned long-term CO2 target. The German automotive industry is a driver of innovation. Over the next three years we will invest 12 billion euro in alternative drive trains alone. By 2014, our OEMs will have 15 electric vehicle models on the market which are ready for series production. Our commitment in the National Platform for Electric Mobility is well known.
So we have set ourselves the target of further CO2 reductions. And we are making good progress. Yet the plans that Brussels has presented for the “long-term target for 2020” appear to be out of all proportion. The European Commission is unnecessarily pushing at the limits of economic and environmental policy and thus jeopardising value creation in Europe. What is more, such an approach is not compatible with the objective of “re-industrialising” Europe, which Antonio Tajani, European Commissioner for Industry, recently spoke about.
The 95-gram target for the year 2020 can no longer be achieved solely by optimising classical drive trains, as was the case with the 130-gram value (for 2015). An average of 95 grams for all passenger cars newly registered in the EU means that we have to equip a considerable proportion of these cars with alternative drive trains – or else we end up in Europe with a “generic car.” Our industry invests billions in alternative types of power trains. But then neither should the Commission arbitrarily cap the set-off of electric cars against the average CO2 value at 20,000 vehicles per manufacturer – and that over a period of four years. That would be equivalent to only 185 cars per manufacturer, per year, per EU country! Second, vehicles that run emissions-free at the local level should be offset at a factor that has a steering effect. We therefore appeal to Brussels to revise this draft again. With the current form, innovation will not be stimulated and supported, but instead will be blocked by requirements that have been set incorrectly.
|November 2012||Januar – November 2012|
|Nutzfahrzeuge *)||Anzahl||+/-% Vorjahr||Anzahl||+/-% Vorjahr|
|Nfz bis 6 t||21.300||-13||207.960||-4|
|Nfz bis 2 t||1.250||-35||12.920||-24|
|Nfz über 2 bis 3,5 t||19.410||-11||189.290||-2|
|Nfz über 3,5 bis 6 t||640||-10||5.750||-10|
|Nfz über 6 t||6.350||-17||75.890||-8|
|Nfz über 6 bis 16 t||2.230||-3||24.700||-8|
|Nfz über 16 t||4.120||-23||51.200||-8|
*) z.T. vorläufig