High Base from Scrapping Incentives Sees German Passenger Car Sales Collapse by 29.8% in February

Fears that the German passenger car market is set to record a dramatic decline in 2010 as a result of the dramatic pull-forward effect on sales generated by the government's 5 billion euro scrappage scheme in 2009 appear to be confirmed. According to the latest sales data released by the government's Federal Motor Transport Authority (KBA),agency the market recorded a sizeable 29.8% year-on-year decline in sales during February to 194,846 units. This was ostensibly because February 2009 was the first full month to full benefit from the German government's scrappage scheme which offered consumers a 2,500-euro scrappage subsidy towards a new passenger car if they scrapped an old vehicle older than nine years. The scheme was an enormous success and witnessed accelerated growth in the sales of small, cheap and fuel efficient passenger cars. As a result of the scrappage scheme running for the first time in February 2009 the market increased by 21.5% during the month. German sales during February were also significantly lower than the figure recorded during February 2008 of 229,000 units. It was the worst showing for the February passenger car market recorded since February 2007, which saw its sales artificially pegged back as a result of the increase of VAT at the start of 2007 to 19%, up from 16%.

On a brand-by-brand basis the Volkswagen (VW) Group experienced a strong month during February by substantially outperforming the overall market decline during the month. Continuing robust sales of the Mark VI Golf and the new Polo saw the brand record a 16.0% y/y fall in sales for the month to 46,238 units. However, the brands that performed best in terms of limiting their sales declines in comparison the year before were the premium brands. This is hardly surprising as the relatively high price point of their model offerings meant that they experienced little or no discernible benefit from the scrappage scheme. As a result, the second-best selling brand overall during the month, Mercedes-Benz, saw its sales decline by 11.9% to 16,123 units, which again was a vastly superior figure to the overall market decline. Audi was in fifth position in the chart and saw its sales fall 19.1% y/y to 14,711 units. However, Audi is about to get a substantial sales boost in its domestic market with the launch of the production version of the A1 B-segment premium model, which should also generate a substantial number of conquest sales from BMW Mini. However, it was the BMW group which performed best overall among the top-ten OEMs during the month, as the only brand to record an outright sales volume rise during the month of 6.9% y/y to 15,630 units.

Outlook and Implications

While not entirely unexpected, the reality of such a large, accelerated decline in sales volumes as a result of the high base comparison with the scrappage fuelled market of last year makes uncomfortable viewing for the OEMs involved in the market. The scrappage scheme fuelled the German market to its third highest sales volume ever in 2009, with the years following the reunification of East and West Germany being the only two sales years to exceed last year's tally. The market increases recorded in the second and third quarter were consistently in the 20-30% range, peaking at 40% in June with a record monthly sales volume of 427,000 units. This is the base comparison that the German market will suffer from over the next few months and consistent double-digit sales declines are likely to lead to a depressed atmosphere in the dealerships across the country, despite this being an inevitable effect of the scrappage scheme. The scrappage scheme initiated quite a dramatic pull-forward effect in the market, meaning that sales which were likely to have occurred organically in 2010 were made in 2009, further undermining the chances of the market this year. The scrappage scheme also exhausted a large degree of pent-up demand in the market that would have filtered down into sales at a later date without the extraordinarily successful market stimulus programme.