Car sales in Germany stay on the fast track in 2016

It has been a momentous 2016 for the German automobile industry. Beyond just numbers, there were other issues that dominated the news. The first was, of course, electric vehicles (EV) which is a hot topic everywhere, be it in newsrooms or pubs.

It was only natural, therefore, for the German cabinet to introduce an extensive package of measures that would push EV sales. There are three core elements here. The first is a purchase price incentive called environmental bonus that partially compensates for the higher price of EVs and make them more attractive to buyers. Two, legal hurdles might be reduced to facilitate construction of charging stations on private parking lots. Finally, the government will provide €300 million to build 15,000 new charging stations.

So much for EVs. The other big news in Germany related to road tolls which as everyone knows help manage traffic while earning money to maintain roads. While this is the theoretical part, reality in Germany is a different kettle of fish.

Some neighbouring countries, especially Austria and the Netherlands, believe that they are likely to be disadvantaged by the introduction of a German road toll for cars. Although both countries partly use their own toll systems, their grouse is that the German government will offset toll expenses by the vehicle tax. This would make it a zero-sum game, but a benefit only reserved for German citizens.

After court intervention, Germany finally received approval for the planned road toll in December 2016. However, the financial part of the system remains a problem with recent studies indicating that the potential toll income could be lower than expected and even below the determined minimum of €500 million.

This could be attributed to the fact that the toll rate should perhaps be calculated based on the European emission standards. The increasing popularity of vehicles fulfilling the highest standard to date, Euro-6, could lead to lower incomes from the toll than originally planned. Alexander Dobrindt, Federal Minister of Transport and Digital Infrastructure, who supports this initiative is optimistic and expects implementation of the toll system in Q4 2017.

While these were important sidebars in Germany’s automotive landscape, its new car registrations continued their solid growth in 2016. With 2.57 lakh units sold in December new car sales increased by 3.7 per cent over December 2015.

The monthly result was boosted by one additional working day. In total, 3.35 million cars were registered in 2016, up 4.5 per cent or almost 150,000 units compared to 2015.

Private customers accounted for more than 35 per cent of newly registered cars, up 9.3 per cent to 1.17 million units, while businesses took up the lion share of 65 per cent or 2.18 million units, up 1.1 per cent on a year on-year basis. In total, both customer segments contributed positively to the overall growth of new car registrations.

Although VW’s registrations dropped by 4.3 per cent, the Wolfsburg-based manufacturer is still the undisputed market leader with more than 650,000 cars sold throughout 2016 equalling a market leading double-digit share of 19.6 per cent. For a brand that was rocked by the diesel scam in 2015, VW has staged a strong comeback and is now gearing up for a host of challenges in the coming years.

In second and third place are the premium brands, Mercedes-Benz (9.3 per cent) and Audi (8.6 per cent) which sold 3.1 lakh (up 8.5 per cent) and 2.9 lakh cars (up 7.6 per cent) respectively.

French carmaker, Renault is also seeing strong growth in Germany, with 13.9 per cent growth year-on-year to 1.25 lakh units thanks to the introduction of new models.

Compact cars remain the preferred mobility option for German customers and took up a fourth of total registrations. The most remarkable growth was seen in the SUV and crossover segment with a year-on-year increase of 25.2 per cent to 4.26 lakh units.

Despite the introduction of purchase incentives for EVs in Q2 2016, sales of battery electric cars fell by 7.7 per cent to 11,410 units. Hybrids, on the other hand, continued to grow: Plug-in hybrids were up 23.8 per cent to 13,744 cars and sales of full and mild hybrids grew even more strongly at 52 per cent to 34,252 cars.

Since its low point in March at -6.2 points, consumer confidence has increased steadily to -0.7 points in December 2016, representing the best value of the last 16 months. This is largely due to more positive expectations of the general economic situation over the next 12 months.

One reason for this buoyant outlook could stem from the decreasing focus on the refugee crisis.

However, this could be impacted by political discourse on the upcoming election or an increase in interest rates. Despite this, the outlook for the German economy is expected to stay positive even while real GDP growth is not expected to be as strong in 2017 as it was during the year that just went by.

Autofacts forecasts 2 per cent growth to 3.4 million newly registered cars in 2017.

The writer is Partner, Price Waterhouse