Global demand for passenger cars reaches new record high
Worldwide, the number of new passenger car registrations increased to 81.1 million vehicles in fiscal year 2016, exceeding the previous year’s record level by 5.4%. Demand rose in the Asia-Pacific, Western Europe, North America and Central Europe regions, while new passenger car registrations in South America, Eastern Europe and Africa failed to match the prior-year levels.
Sector-specific environment
The sector-specific environment was influenced significantly by fiscal policy measures, which contributed substantially to the mixed trends in sales volumes in the markets last year. The instruments used were tax cuts or increases, incentive programs and sales incentives, as well as import duties.
In addition, non-tariff trade barriers to protect the respective domestic automotive industry made the free movement of vehicles, parts and components more difficult. Protectionist tendencies were particularly evident where markets were on the decline.
Europe/Other Markets
New passenger car registrations in Western Europe rose by 5.8% in the reporting period to 14.0 million vehicles, the highest level since 2007. This better-than-expected trend was mainly attributable to the positive overall economic environment, low interest rates, low fuel prices and manufacturers’ incentive programs. Double-digit growth rates were achieved in Italy (+15.4%) and Spain (+10.9%), especially due to the release of pent-up demand for replacement vehicles. By contrast, growth in new passenger car registrations was relatively moderate in France, at 5.2%. Demand volume in the United Kingdom (+2.3%) was slightly higher than the record level of the previous year.
At 2.7 million vehicles, the number of new passenger car registrations in Central and Eastern Europe was down 2.3% year-on-year. The decline in Eastern Europe was mainly attributable to the Russian market, which contracted for the fourth year in succession (−11.7%) primarily because of the continuing weak economy and ongoing political tensions. By comparison, new passenger car registrations in the EU member states of Central Europe increased by a substantial 15.2% to 1.1 million units.
Passenger car sales in the South African market declined by 12.4% in the reporting period to 361 thousand vehicles, the lowest level since 2010. In addition to the weak economic environment, the main reasons for this decrease were low consumer confidence, high interest rates and double-digit growth in new car prices.
Germany
In Germany, 3.4 million new passenger vehicles were registered in 2016, 4.5% more than in the previous year. This positive demand trend was due in particular to higher real incomes, the strong labor market and attractive financing options. New passenger car registrations for both private (+6.8%) and commercial (+3.3%) customers contributed to this increase, which resulted in the highest passenger car
market volume since 2009. A slight increase in domestic production (up 0.7% to 5.7 million vehicles) contributed to the ongoing recovery of the German passenger car market, whereas passenger car exports (up 0.1% to 4.4 million vehicles) were on a par with the high levels of the previous year.
North America
At 21.1 million vehicles, sales of passenger cars and light commercial vehicles (up to 6.35 tonnes) in the North American markets were slightly higher in 2016 (+1.8%) than the record level of the prior year. In the USA, demand reached the record set in the previous year with 17.6 million vehicles sold (+0.5%). In addition to the strong labor market, high consumer confidence, low fuel prices and attractive financing and leasing conditions were the main factors in this stable market trend. Models from the SUV, pickup and van segments were the only ones to benefit from this environment (+7.2%), whereas the passenger car segment contracted substantially (−8.1%).
In both Canada (up 2.6% to 1.9 million vehicles) and Mexico (up 18.6% to 1.6 million vehicles), sales of passenger cars and light commercial vehicles continued to grow, topping the record of the prior year in both markets.
South America
The South American markets for passenger cars and light commercial vehicles fell by a substantial 11.5% in the reporting period, to 3.7 million units. This trend was mainly due to the prolonged slump in Brazil, where the number of new registrations fell by 19.9% to 2.0 million vehicles, the fourth successive year of decline. This, the lowest number of vehicle registrations since 2006, was chiefly due to the recessionary economic environment, characterized by rising unemployment, lower real incomes and restricted access to loans. By contrast, Brazil’s vehicle exports rose by 24.7% to 520 thousand units.
In Argentina, new registrations of passenger cars and light commercial vehicles increased by 9.8% from the previous year’s low level to 677 thousand vehicles. High manufacturer discounts helped to boost demand.
Asia-Pacific
The passenger car market volume in the Asia-Pacific region rose by 11.9% in the reporting period to 35.3 million units. In terms of unit numbers, this was the highest increase in new vehicle registrations worldwide. The Chinese market was by far the biggest driver of this growth. The 22.9 million vehicles sold in China (+17.9%) represented a new record. One of the factors contributing to this growth was the tax relief on the purchase of vehicles with engine sizes of up to 1.6 l introduced on October 1, 2015, from which attractively priced entry-level models in the SUV segment benefited most.
The number of new vehicle registrations in the Indian passenger car market reached 2.8 million units, up 7.0% year-on-year. This trend was driven by the positive economic environment and the large number of new models.
In Japan, new passenger cars registrations fell by 1.6% to 4.1 million vehicles, mainly because of a substantial drop in the mini passenger car segment (up to an engine size of 660 cm3).
MIXED REGIONAL DEMAND FOR COMMERCIAL VEHICLES
In 2016, demand for light commercial vehicles was up slightly overall on the previous year: in total, around 9.6 (9.5) million vehicles were registered worldwide.
In Western Europe, the number of new vehicle registrations rose by 10.0% during the year to 1.8 million units, driven by the region’s positive economic performance. The markets in Italy (+28.9%), Spain (+11.6%) and France (+9.4%) recorded high growth rates. In Germany, the 2015 figure was significantly exceeded by 10.2%.
The markets in Central and Eastern Europe saw significant growth on the whole with 303 (287) thousand vehicle registrations. In Russia, ongoing political and economic tensions resulted once again in a decline in demand. The other markets in the region maintained or surpassed their prior-year results, with registrations in Poland in particular rising to 61 (52) thousand units.
In North and South America, the light vehicle market is reported as part of the passenger car market, which includes both passenger cars and light commercial vehicles.
Registrations of light commercial vehicles in the Asia-Pacific region increased to 6.6 million units in the reporting period (+1.9%). In China, the region’s dominant market, demand for light commercial vehicles of 4.1 million units was up 4.4% on the prior-year figure. Tax relief for vehicles with engine sizes of up to 1.6 l contributed to this growth. As a consequence of the sustained economic growth in India, more vehicles were registered than in 2015; here, 520 (481) thousand new units were registered. The market volume fell in Japan as a result of the persistently weak economic trend (−8.5%).
Global demand for mid-sized and heavy trucks with a gross weight of more than six tonnes was higher in fiscal year 2016 than in the previous year, with 2.3 million new vehicle registrations (+0.9%). The volume of vehicles rose by 0.5% in the markets that are relevant for the Volkswagen Group.
In Western Europe, the number of new truck registrations increased by 8.6% to a total of 280 thousand vehicles on the back of positive economic stimulus. The markets in Italy (+41.9%), France (+13.7%) and Spain (+11.6%) in particular recorded high growth rates. In Germany, Western Europe’s largest market, the prior-year figure was exceeded by 3.9%.
Central and Eastern Europe saw demand rise by 10.3% to 129 thousand units. Registrations in Russia moved up 6.9% from a low prior-year level to 48 thousand vehicles, while Poland, among others, generated strong growth (+19.3%).
In North America, the slowdown in the US economy caused demand in the truck market to dwindle slightly; in this region, 488 (531) thousand mid-sized and heavy trucks were registered. The number of new registrations in the US market declined sharply.
South America saw a considerable decline in market volume compared with the previous year. Here, the number of new vehicle registrations fell by 25.0% to 95 thousand units. In Brazil, the region’s largest market, demand for trucks, at 48 (68) thousand vehicles, was down substantially on the already low prior-year figure as a result of persistently weak economic output and high inflation rates. New vehicle registrations slumped in Argentina (−22.8%) due to pull-forward effects in 2015 attributable to the introduction of the Euro 5 emission standard in addition to the economic downturn.
At 545 (526) thousand new registrations, the volume of vehicles in the Asia-Pacific region – excluding the Chinese market – was higher than in 2015. Demand in India increased in the reporting period: a total of 292 thousand vehicles were registered, 9.9% more than in the previous year. This was due to the country’s positive economic performance, demand for replacement vehicles and the improved investment climate. Demand in China, the world’s largest truck market, surged in 2016 to a total of 600 thousand units from a weak prior-year level (+11.4%).
Demand for buses in the markets that are relevant for the Volkswagen Group was perceptibly lower than in the previous year. Negative economic trends in South America led to a marked decline in demand, though the markets in Central and Eastern Europe expanded considerably.
TRENDS IN THE MARKETS FOR POWER ENGINEERING
The markets for power engineering are subject to differing regional and economic factors. Consequently, their business growth trends are generally independent of each other.
The merchant shipbuilding market again experienced very muted order activity in the reporting period. Existing and further ongoing overcapacity had a negative impact on utilization levels of the entire merchant fleet. While bulk carriers were particularly affected by low freight rates, low transport rates and fierce competition triggered a further wave of consolidation in the container ship sector as companies merged or were squeezed out of the market altogether. Despite the slight recovery in oil prices, the persistent overcapacity in the offshore sector continued to discourage investments in oil production, with the result that orders for new ships in this segment dried up almost completely. By contrast, demand for cruise ships and ferries rose. The trend toward gas-powered ships weakened somewhat in the reporting period due to the drop in liquid-fuel prices. Other reasons for this decrease were the lack of refueling infrastructure in some places and uncertainty as to future emission standards. The special market for government vessels continued on a positive trajectory. On the whole, the marine market volume was substantially lower year-on-year. China, South Korea and Japan remained the dominant shipbuilding countries, accounting for a global market share of more than 80% measured in terms of tonnage ordered. On account of reduced market volumes, all market segments are seeing considerably higher competitive pressure and a sharp drop in prices as a result.
Although demand for energy solutions continued to be strong in developing countries and emerging markets throughout the reporting period, the difficult economic environment and financing conditions led to noticeable delays in order placement. Regions such as the Middle East and Southeast Asia, and to an increasing degree South America, continue to be relevant for the regional markets for energy solutions. Overall, there was a slight year-on-year increase in demand for decentralized diesel and gas engine power plants. The shift away from oil-fired power plants toward dual-fuel and gas-fired power plants continued. The increasing pressure through competition and pricing is impacting on the earnings quality of the orders.
The market for the construction of turbomachinery is mainly dominated by investment projects in oil and gas, the processing industry and power generation. The persistently low oil price caused leading oil and gas companies to slash investment yet again, causing order placement to be further postponed or even canceled altogether. Thus far, the slight rise in oil prices recorded in the last months of the reporting period has not led to any recovery in demand. Demand for products from the processing industry and power generation remained generally weak as well. Overcapacity in some industries, such as steel-making, prevented any possible recovery in the corresponding markets. Insufficient capacity utilization at many manufacturers additionally intensified the level of competition. Overall, the market volume for turbomachinery in the reporting period was once again well below the prior-year level. Competition remains fierce and there is considerable pressure on prices.
On the whole, the after-sales market performed well. In particular, after-sales business for large-scale engines in the marine and power plant sector benefited from rising interest in long-term maintenance contracts.
DEMAND FOR FINANCIAL SERVICES
Demand for automotive-related financial services remained high in fiscal year 2016. In particular, there was an increase in demand for insurance and service products such as maintenance and servicing agreements, as customers in more advanced automotive-related financial services markets are putting greater focus on optimizing overall running costs. In the fleet segment, some customers moved beyond pure fleet operation to full mobility management using automotive financial service providers. There was also increased demand from both private and business customers for mobility services centered on vehicle usage rather than ownership.
In the European market, automotive-related financial services continued to enjoy rising popularity during the reporting period. The overall market development was positive in most European countries. Sales of financial services rose especially strongly in the UK, France, Spain and Italy. The UK’s decision to leave the EU has not yet had a negative impact on local demand for financial services. The financial services business in Europe was also strengthened by a positive cross-border trend in demand for after-sales products such as insurance and products relating to wear and tear.
In 2016, the German market once again recorded growth in the financing and leasing business, mainly driven by the business customer segment. Alongside traditional products, there was a particular focus on automotive services.
In South Africa, demand for financial services products was stable despite a declining market for new vehicles. However, the macroeconomic environment resulted in a slight decline in lending to private customers.
Automotive financial services were also in high demand in North America. In the United States, the overall market once again performed positively. In particular, demand for leasing through captive financial service providers remained at a consistently high level. In Mexico, sales of financial services involving products such as extended warranties continued to be high.
The difficult macroeconomic and political situation in Brazil continued in 2016. This had a negative impact on the consumer credit business for new vehicles and sales of the country-specific financial services product Consorcio, a lottery-style savings plan. However, the negative trend abated slightly in the second half of the year. Despite the reforms initiated, the economic situation in Argentina remained difficult and continued to hold back sales of automotive-related financial services.
The performance of markets in the Asia-Pacific region during the reporting period was mixed. In China, the proportion of loan-financed vehicle purchases rose. Despite increasing restrictions on registrations in metropolitan areas, there is still considerable potential to acquire new customers for automotive-related financial services, particularly in the interior of the country. Demand stagnated in Japan and South Korea. In Australia, meanwhile, the central bank’s policy of low interest rates stimulated overall demand for automotive-related financial services and service contracts.
The financial services market in the commercial vehicles business area performed positively again in Europe. Owing to the difficult economic situation in Brazil, the truck and bus business and the related financial services market declined further here. However, this negative trend tapered off slightly in the second half of the year.