Global Economic Downturn Impacts Car Sales Worldwide
First indications of market stabilization as a result of government support
The global economic downturn and credit crunch had a negative impact on car sales worldwide in the first quarter of 2009. In the first few months of the year, at the same time that economic output was falling worldwide, consumers were reluctant to purchase new cars. The economic stimulus programs initiated by governments of many nations around the world are beginning to have some effect, however, and are giving an important boost to demand for cars. According to the German Association of the Automotive Industry (VDA), the effects of these counteracting measures should increase in the coming months, thus helping to slow the downward trend on the global sales markets.
Although car sales in Europe in March were down 9 percent compared to the same month last year, several European countries were showing the first indications of a recovery in terms of demand. New car registrations increased not only in Germany, but also in France (+8 percent). And after 14 months of decline, sales once again reached a stable level in Italy in March. The governments in all of these countries have introduced scrapping premiums that provide an effective incentive for purchasing new fuel-efficient automobiles.
A total of 3.4 million passenger cars were sold in Europe in the first three months of 2009, a 17-percent decline from the result posted during the same period last year. In Western Europe sales of passenger vehicles fell 16 percent to 3.2 million units. The drop would have been even worse if new vehicle registrations in Germany in particular had not increased considerably (+18 percent). By contrast, there were steep declines in the volume markets in the UK (-30 percent), Spain (-43 percent), and Italy (-19 percent). The decrease was less severe in France (-4 percent). Compared to the same period in 2008, demand in the new EU member states plummeted 29 percent in the first quarter, with only Poland registering a slight increase in passenger car sales (+1 percent).
Results were mixed on the other markets around the world. In the United States, vehicle sales totaled 2.2 million units in the first quarter of 2009, down 38 percent from the same period in 2008. The success of the scrapping premiums in Europe has also attracted the attention of the U.S. government, which is currently debating the possibility of introducing such a program as well. However, the results in Europe clearly show that achieving the goal of market stabilization and a renewal of vehicle fleets is only possible if the premium does not distort the competitive situation.
Just under 1 million passenger cars were sold in Japan from January through March, a 23-percent decline from total posted in the same period last year. Market leader Toyota lost a quarter of its sales. The Japanese government now plans to offset the effects of the most severe recession since World War II with another economic stimulus program amounting to the equivalent of €117 billion. The new program would also grant buyers of new cars a scrapping premium worth the equivalent of €1,900 if they scrap a vehicle that is more than 13 years old.
The first signs of a recovery are now evident in several emerging markets, however: In China, car sales totaled 1.6 million units in the first quarter, up 4 percent compared to the same period last year. The result was even better in March, when sales rose 10 percent. Demand was boosted by a 50-percent cut in sales tax for vehicles with less than 1.6 liters displacement, and by car-purchase subsidies for people living in rural areas. Due to the weakness of foreign trade, the Chinese government is forced to implement an extensive economic stimulus program to boost domestic demand, the only means of reaching the country's ambitious growth targets and dampening the people's discontent.
In India car sales through March were up almost 2 percent to 447,200 vehicles. Following a weak start in the new year, demand began to improve again after interest rates for loans fell sharply. In response to the considerable slowing of economic growth in India, the country's government has cut the sales tax and increased government expenditure to stabilize consumer demand.
In Brazil sales in the first quarter of 2009 rose 4 percent to 642,000 vehicles, and sales in March were up by even 18 percent. The Brazilian government had cut taxes for passenger cars at the beginning of the year, causing sale prices to fall. Originally scheduled to be in effect until the end of March, the tax cut will now be continued for another three months. In addition, the government will provide the equivalent of approximately €1.3 billion for financing sales of passenger cars. German manufacturers increased sales in Brazil by 9 percent in the first three months of the year, enabling them to expand their market share by 1 percentage point to 24 percent.
In Russia, on the other hand, registrations of new passenger cars were down 40 percent in the first three months of the year, compared to the same period in 2008. In response to this dramatic drop in sales, the Russian government has decided to assist the country's weakened auto industry. As a result, Russia's largest passenger car manufacturer, Avtovaz (Lada), will receive an interest-free loan equivalent to €560 million. In addition, the government is providing an amount equivalent to €135 million for subsidizing car loans, although these loans will only be granted for new vehicles costing up to around the equivalent of €8,000. With their sales dropping by only 22 percent in the first quarter, German automakers performed comparatively well in this market, which was very weak at the start of the year. As a result, they were able to increase their market share by 5 percentage points to over 19 percent.
