Germany Autos Report Q3 2009

The German automotive sector has shown stability following the introduction of the scrappage scheme by the government on January 13. However, as stated in the Q309 Germany Autos Report, the sharp decline in commercial vehicle sales and falling export orders could mean that the worst may yet be to come.

According to German interest group Verband der Automobilindustrie (VDA), passenger car sales soared by a massive 18% year-on-year (y-o-y) to 1.25mn in Q109 compared with the period last year. In contrast, total commercial vehicle sales fell by a staggering 27% y-o-y to 80,500 units, implying that the economy remain pessimistic. It is believed the impact of the credit crisis and recovery in the German economy will shape market demand in the short and medium term, but the issue of emission norms prior to its 2015 deadline will continue to influence market demand in Germany in the longer term.

With an economic forecast of a 4.6% contraction in 2009, we expect domestic vehicle sales to decline due to lower consumer spending. We maintain our annual sales forecast of a close to 3% y-o-y decline, which is likely to be followed by mild recovery in 2010.

In terms of production, Germany continued to bear the wrath of falling export demand. With passenger car and commercial vehicle exports declining by 40% and 66% y-o-y, respectively, German carmakers produced 31% fewer passenger cars, down to 1.4mn units, and 59% fewer commercial vehicles, down to 75,300 units, between January and April. We have revised down our production forecast to a combined 15% y-o-y fall by end-2009. The future for a sustained growth is uncertain, however, due to the carbon emission norms that come into effect from 2015.

The crisis has also seen major developments in the competitive landscape within the industry as mergers and acquisitions (M&A) become the order of the day. Canadian partsmaker Magna International was chosen as a preferred part-owner of General Motors (GM)'s German subsidiary Opel. Meanwhile, cash-constrained Porsche has given up its plans to own a 75% stake in Volkswagen (VW) and is instead likely to merge with the German group. Autos parts suppliers are facing equally difficult times, as is evident from Continental’s plans to close down two of its most costly plants in Europe.

Germany’s stable market, assisted this year by the government’s well-timed scrappape programme, places the country in the second position of the Business Environment Ratings for the autos industry in Europe. Sustained stability could help it reach first place.