Rising energy costs and weaker order intake spell trouble for German new-car market
06 September 2022
Germany’s automotive industry is facing a set of challenges, including supply-chain issues, a shortage of semiconductors, and rising energy costs. With living costs rising and demand for new cars weakening, the market is expected to take a hit this year.
The most recent figures from Germany’s Federal Office for Motor Vehicles, the Kraftfahrt-Bundesamt (KBA), show that the new-car market totalled 199,183 units in August. While this represents a year-on-year increase of around 3%, it is not a reason to breathe a sigh of relief. Adjusted for the extra working day in August, new-car registrations were down 1.4%, with the German market performing below Autovista24 expectations.
Furthermore, in contrast to other European markets, the seasonally-adjusted annualised rate (SAAR) only improved slightly, from 2.51 million units in July to 2.52 million in August.
‘The minimal growth in new registrations in August cannot hide the fact that the German passenger-car market is heading for its worst performance in around 30 years in 2022,’ said Reinhard Zirpel, president of the Association of International Motor Vehicle Manufacturers (VDIK). ‘The monthly level of new-car registrations remains significantly below the long-term average. And new orders are also falling significantly.’
Passenger-car production in Germany increased for the fourth month in a row, with manufacturers producing 207,400 passenger cars in August. Since the start of the year, 2.1 million passenger cars have rolled off assembly lines in the country, up a marginal 1% compared to the same period last year.
In the first eight months of 2022, around 1.64 million new cars were registered, a year-on-year fall of 9.8%. To put this into perspective, from January to August 2019, around 2.5 million new cars were registered, while in the same period in 2020, the country reported 1.78 million new-car transactions.
Given the weaker order intake and continued supply-chain disruption, Autovista24 forecasts that new-car registrations will fall by 5% this year, to a total 2.49 million units.
Energy a ‘big issue’
The German automotive industry has been grappling with supply-chain disruptions since the start of the COVID-19 pandemic, with the war in Ukraine compounding the issue. Another side effect of the war is sky-high energy prices, which are fuelling uncertainties in the sector.
Industry analysts are concerned that the ramp-up of electromobility could be threatened if electric vehicles (EVs) become more expensive to run than their fossil-fuel-powered counterparts because of rising energy costs.
In August, Germany approved energy-saving measures to protect the country’s gas reserves as the winter months approach. The economy ministry said the rules could save private households, companies, and the public sector €10.8 billion over two years.
The German Association of the Automotive Industry (VDA) emphasised that maintaining the country’s energy supply must be a top priority. It cautioned that production declines in the automotive industry and the supply chain must be prevented as much as possible. The VDA warned that if suppliers were hit by production declines or stoppages, this would have a significantly negative impact on the entire industry.
The association also urged the government to intensify its efforts to make the country less dependent on Russian gas and secure other international energy agreements. ‘We are concerned about the cost of electricity. That is going to be the next big issue,’ VDA president Hildegard Müller said in a recent interview with news outlet Die Welt.
In their reports on their financial performance over the first six months of the year, German carmakers identified uncertainties regarding energy supply, which is causing headaches in the industry. Germany is looking to bolster its energy ties with Canada as part of a move that also saw Mercedes-Benz and Volkswagen Group sign raw material agreements last month to explore deeper cooperation across the automotive value chain.
Rising energy prices and inflation are having a clear impact on consumer behaviour. With list prices increasing, customers are less willing to spend their money on higher-priced new cars. Analysts have also observed that the government’s planned reduction of subsidies for electric vehicles is having a dampening effect on buying patterns for new cars.
Inflation has stubbornly hovered about the 7% mark in recent months. The Federal Statistics Office released an initial estimate of the inflation rate in August, which reached 7.9% – up from 7.5% in July – with economists predicting it could rise again in the autumn months.
‘Energy prices have increased considerably since the war started in Ukraine and have had a substantial impact on the high inflation rate. Energy prices were 35.6% higher in August 2022 than in August 2021,’ the Federal Statistic Office said. ‘Another factor with an upward effect on prices is interruptions in supply chains caused by the COVID-19 pandemic.’
All of this is putting a damper on market developments, with the VDA warning that high raw-material costs and general uncertainty due to the ongoing war in Ukraine are further impacting the automotive industry.
