Sales and employment both rise – Global market to continue growing in 2018 – German automotive industry goes on the offensive with electric mobility and digitization – Openness to technology is required
Statement delivered by Matthias Wissmann, President of the German Association of the Automotive Industry (VDA), at the VDA’s year press conference in Berlin on Tuesday, December 6, 2017
Today I would like to talk about three main topics:
- developments on the automotive markets
- the offensive of the German automotive industry
- and the political conditions.
Part I – Markets
The global passenger car market has grown again this year, by 2 percent to 84.6 million new cars.
China, the largest vehicle market in the world, has expanded again. We expect a rise of 2 percent to 24.1 million new cars.
The US light vehicle market has contracted slightly, for the first time after seven years of growth – by 2 percent to 17.2 million units, but it remains at a high level.
Europe (EU+EFTA) has continued its growth in 2017. We expect an increase of 3 percent (15.6 million passenger cars).
Of the top five markets in Europe (Germany, France, the United Kingdom, Italy and Spain), only the UK has falling figures. Here Brexit is having some initial effects.
The mood is also good on the smaller European markets. Especially strong growth has been seen in the new EU countries (+10 percent).
The domestic market is growing – sales and employment are both rising
The German passenger car market has increased markedly this year for the fourth time in succession. The reasons for this are the healthy overall economic development, the high rate of employment, good consumer income levels and the continuously low interest rates.
We expect growth of at least 3 percent to a good 3.4 million passenger cars. If the December statistics are good, this might even come close to 3.5 million new cars. At this time we are facing two opposing developments: on the one hand the trade-in bonus is boosting the market, while on the other there is a tangible feeling of uncertainty owing to the debate on diesel bans.
At any rate that is the highest level in this decade.
German manufacturers and suppliers employ a workforce of 818,000 in this country (Jan.-Sept. 2017), which is the highest level for 26 years. Since last year over 11,000 new jobs have been created.
Total sales by the German vehicle industry increased during the first nine months of the current year by 4 percent to 312 billion euros.
In 2017 the German automotive industry will produce around 16.4 million passenger cars worldwide. That is a rise of 4 percent.
While production abroad has added 7 percent and climbed to 10.8 million units, domestic production has fallen slightly (-2 percent) to 5.6 million passenger cars.
A long-term comparison makes this trend even clearer: in 2007, domestic production (5.7 million) was roughly as high as it is today, while foreign production only just exceeded the 5 million mark. This means that over the last ten years, our member companies have more than doubled their production abroad – and thus created the foundation for securing a high level of employment in Germany.
Just for comparison: ten years ago France built nearly 2.6 million cars, but today the expected figure is 1.8 million units, down by more than 30 percent. In Italy production has fallen by 17 percent (from 911,000 to 756,000 units), and compared with 20 years ago the volume of passenger cars produced in Italy has shrunk by more than half.
This shows that a successful industry and the associated prosperity cannot be taken for granted. They are founded on industry’s innovative strength and the correct political conditions.
More than three out of four cars built by our manufacturers in Germany are destined for export. We expect the year 2017 as a whole to show a slight reduction in exports to 4.3 million units (-2 percent). The reasons for this are model changes with localizations in other countries, but also Brexit with the associated drop in demand in the UK due to the exchange rate.
Conclusion: the automotive year 2017 was a good one for our industry. We have produced more cars worldwide than ever before. Our share of the global market comes to almost one fifth, and in Europe half of all new registrations are of cars from German group brands. And our share of the global premium market exceeds 70 percent.
Global passenger car market to continue growth in 2018
What do we expect in the coming year? We assume that the global market will add one percent and total 85.7 million units.
The overall European passenger car market will maintain its level of 15.6 million units. In contrast, Western Europe will slow down owing to falling sales in Britain (-5 percent) and so a small decrease (-1 percent) is to be expected, bringing the total down to a little over 14.2 million cars.
Following Germany’s strong sales result in 2017, the home market will contract slightly to a volume of roughly 3.4 million new registrations (-2 percent). However, the market will be hovering around its long-term average.
The US market will continue to lack dynamism in 2018, and we expect sales of just over 16.8 million light vehicles (-2 percent); that will still be a satisfactory result.
China, on the other hand, will remain on its growth path and increase by 2 percent to a good 24.6 million passenger cars.
Russia and Brazil will continue their recovery. The Indian market may well expand by 10 percent in 2018 to 3.6 million passenger cars and thus overtake the German passenger car market for the first time.
Against this background, in 2018 we expect our global passenger car production to rise by 2 percent to 16.7 million units.Domestic production will remain stable, at 5.6 million passenger cars; exports will also remain unchanged at 4.3 million vehicles. Foreign production will add 3 percent and reach 11.1 million units.
Strong Western European commercial vehicle market
Now for a quick look at the international commercial vehicle markets (over 6 t):
In 2017 the Western European commercial vehicle market again stayed around the previous year’s level (288,000 units) – recording the highest volume since 2008. While Italy and France enjoyed dynamic growth, Spain and Germany (87,000 units) remained more or less static at their 2016 levels. Britain, by contrast, has to expect tangible contraction. In 2018 we expect Western Europe to exhibit slender growth (+1 percent to 292,000 units).
The US market, which shrank last year, has stabilized again in 2017, and next year we expect growth of 6 percent.
The figures in China have skyrocketed in 2017 – with at least 30 percent growth, to nearly 1.3 million units. However, this will not continue in 2018.
The van market (up to 6 t) in Germany set a new record of 264,000 units in 2016. This level may well be exceeded by 4 percent this year, but in 2018 we expect to see a lateral shift.
Part II - Offensive of the German automotive industry
We are investing heavily in the mobility of tomorrow – in many fields. This industry’s total annual investments in research and development come to 39 billion euros, and a large portion of that is going on alternative powertrains. At the same time, the workforce in the R&D departments is growing much faster than overall employment. During the last five years, over one quarter of new jobs in the German automotive industry was created in the area of research and development, which means over 25,000 additional highly skilled jobs.
Electric mobility is very dynamic
In the coming two to three years, the number of e-models available from our manufacturers will treble to over 100. The latest announcements at the IAA have set out the timetable for the years that will follow: over the next five to eight years the German OEMs will launch more than 150 new models with electric drive onto the roads. Before the end of this decade, electric propulsion (PHEVs, BEVs) will be present in all segments from compact cars to SUVs. We will then have ranges of more than 500 kilometers on a single battery charge.
The German automotive industry is going to invest over 40 billion euros in alternative powertrains in the period up to 2020.
Around one third of all patents worldwide in the field of electric mobility (34 percent) and hybrid drive (32 percent) come from Germany. We know that only those who lead in research and development will remain in the vanguard when it comes to electric cars.
We have greatly increased our shares of the electric mobility markets. We now take 53 percent of the European market (EU28+EFTA), 64 percent in Germany, and in Norway, the leading market, we account for 58 percent.
So far this year (Jan.-Nov.), new registrations of electric vehicles in Germany have more than doubled to a total of around 48,300 units (+116 percent). All electric models are in just as much demand as plug-in hybrids, and in demand for both types has increased by more than 100 percent. The electric share of all new passenger car registrations was 2.1 percent in November and thus broke though the 2 percent mark for the first time. The year-to-date market share has more than doubled (from 0.7 percent to 1.5 percent). The number of applications for the environmental bonus is rising steadily, and the top five include four models from German OEMs.
The charging infrastructure is also making progress. At present there are 10,700 publicly accessible charging points in Germany, 530 of which are rapid charging points. Next year the number of normal charging points will treble to over 30,000, supported by the German Government’s promotional program, while the number of rapid charging points will actually rise five-fold. There is also the ultra-fast charging network with 400 sites on freeways in Europe, which BMW, Daimler, and Volkswagen’s brands Audi and Porsche are launching in a joint venture with the Ford Motor Company.
Improve air quality in towns and cities – Avoid vehicle bans
For several months now there has been a public debate – and at times a very emotional one – on combustion engines and on diesels in particular. It is high time to make the public discussion more objective. The key aspects are to avoid banning vehicles and to rapidly provide clarity for motorists.
The industry, the Government, the German states and the municipalities are working intensively on jointly improving the quality of air in our towns and cities.
Yet there is no reason for hysteria. Today the air in our towns and cities is better than ever, and according to the German Environment Agency the nitrogen oxide emissions from road traffic decreased by 70 percent in the period from 1990 to 2015, despite the rising volume of traffic.
So this is not a general problem, but instead concerns hotspots in several cities. The NOx values are often up to fifty percent lower just a few meters away from the measuring stations, as recently found by independent researchers at the Karlsruher Institute of Technology (KIT) – for example in Stuttgart.
And one has to ask whether the limit values are always set appropriately. Why, for instance, is the value for Stuttgart’s Neckartor set at 40 micrograms of nitrogen oxide per cubic meter of air, but 60 micrograms in the neighboring office, and 950 micrograms in a factory somewhat further away?
I don’t want to play down the problems, but I do want to put them into the right perspective.
We know about the pressure on the towns and cities to take action for clean air, and we are making considerable contributions to improving the situation. We stand by the promises we made at the first diesel summit in August and we are consistently putting the measures into practice.
The free software updates for over 5 million diesel passenger cars, the trade-in bonuses and the replacement of cars on the road can bring down NOx emissions from road traffic by around 12 to 14 percent by the beginning of 2019.
Moreover, BMW, Daimler and the Volkswagen Group are participating in the German Government’s planned fund entitled “Sustainable mobility for the city”.
This financing is intended to promote alternative powertrains and mobility offers, and to accelerate the replacement of older bus and taxi fleets with vehicles satisfying the latest pollutant emissions standard. Modern Euro VI buses emit 80 percent less NOx on the road than their Euro V predecessors and are far more fuel-efficient. Fleet renewal promises greater success than any retro-fit, that is questionable both technically and in terms of the cost-benefit relationship and is generally associated with a rise in CO2 output.
In addition to our participation in the fund, we ourselves have launched initiatives in cooperation with towns and cities. In the “urban mobility platform” set up last year by the VDA, companies and municipalities are developing joint projects to keep mobility in metropolitan areas efficient, environmentally friendly and safe in the future. Furthermore, together with our manufacturers and suppliers we have built up contacts with municipalities that still have especially critical NOx values at present.
As part of this “urban initiative” we are working together on solutions for improving the air quality quickly in each town. Here the key points are:
- rapid replacement of the fleets with low-emission or emission-free vehicles,
- expansion of the industry’s sharing offers,
- improvements in traffic-management using the “green wave” and digitization.
The companies themselves are also forging new paths. For example, they are extending their “job ticket” schemes, introducing more working from home, and supporting the practice of giving rides.
We are certain that together with the measures from the diesel summit, here a complete package can be put together to prevent general application of vehicle bans in towns and cities.
Climate protection needs a wide range of powertrains
The nitrogen-oxide debate currently overshadows the topic that will be decisive in the longer term: how can we make the mobility of tomorrow climate-friendly?
E-fuels make a necessary contribution to climate protection
The German automotive industry works continuously on reducing further the CO2 emissions from its vehicles. And it does so across the whole range of powertrains. This is the only way that a decarbonization strategy for road traffic can be successful. In 2025, electric cars will probably account for 15 to 25 percent of new passenger car registrations. Conversely, that means a large proportion of vehicles will still be using internal combustion engines. This applies all the more to the international markets: Latin America, large parts of Asia and Africa will not yet have a charging infrastructure with full coverage by 2025.
So we must use all types of powertrains, including hydrogen and natural gas.
Anyone who takes the issue of CO2 seriously will find there is no way round climate-neutral fuels, called e-fuels. The technology for these fuels from renewable sources already exists. Right now the costs are still relatively high, but they will come down.
E-fuels provide an opportunity for climate-neutral internal combustion engines. And they therefore represent an instrument for making huge reductions in CO2 emissions across the entire vehicle fleet, not only in new registrations. Another aspect is that we are becoming less dependent on fossil fuels and can “store” green energy on a large scale.
Technology neutrality instead of technology bans
The CO2 footprint of a modern diesel or gasoline vehicle running on e-fuel can be better than that of an electric car, which is generally charged using energy from coal.
This shows that the path to climate-neutral mobility needs alternative and synthetic fuels, electric mobility and fuel cells. For this reason, policymakers should create regulatory conditions and set objectives but not prescribe the path to be taken.
Quotas and technology bans lead to a dead-end for economic, social and climate-policy. Those who want to maintain a balance between climate protection and industrial policy must follow the basic principle of technology neutrality.
Digitization – German automotive industry is world patent champion
The second major innovation trend – alongside electric mobility – is digitization. During the next three to four years we will be investing 16 to 18 billion euros in this field. The German automotive industry is already the world champion when it comes to patents for connected and automated driving. It holds 52 percent of all such patents issued anywhere in the world since 2010. The top ten holders include six companies from Germany – four manufacturers and two suppliers in first and third place.
We are speaking of the digital transformation of a whole sector through connected and automated driving. The advantages are greater efficiency and comfort – but above all greater safety. There will be a huge fall in the number of accidents.
Part III – Improve the general political conditions
This brings me to the political environment. I cannot remember a situation like this at any time in the last two decades:
On the one hand, there are many trade-policy risks around the world, e.g. protectionist tendencies from Iran to China, and the uncertainty over NAFTA’s future. The fact that the US is aiming for an international level with its tax reform is comprehensible. But to finance this from internal corporate excise taxes would not encourage transatlantic cooperation and would cause considerable double taxation for the companies affected.
Then there are also challenges such as Europe’s future, including the UK and Brexit.
On the other hand, we can see automotive markets that are developing well overall, and even the first signs of hope in Russia and Brazil.
The German automotive industry has maintained a good position in 2017 in this unusually challenging environment.
However, those who want continued success cannot restrict themselves to “business as usual.” This applies to our companies just as much as it does to politics.
The companies must actively shape the change outlined by the key terms digitization, connectivity and alternative powertrains. This will demand enormous investments and innovations.
And both politicians and the public should be more aware than before that the current good situation will not continue automatically in the future. Prosperity, growth and employment cannot stabilize themselves on their own in the long term. They need the appropriate regulatory conditions.
The important point is how Germany’s industrial competitiveness will develop during the new parliament so that prosperity and employment will be safeguarded here in Germany over the coming decade.
The current healthy level of employment is not a sufficient yardstick for future government decisions. We see developments that give us cause for concern:
- the unit labor costs in our industry have been climbing since the beginning of the decade,
- productivity is not growing at the same rate, and other countries are doing better,
- electricity is twice as expensive in Germany as in the US,
- there are also protectionist tendencies in many countries, which Germany as an exporting country cannot ignore,
- in recent years German policies have concentrated more on questions of distribution and less on improving the investment climate.
I am convinced that politicians should now use the opportunity to improve the overall economic conditions – from reducing the costs of energy and related ancillary costs, all the way to making this country competitive on taxation – in good times. Fine weather is the right time to replace the roof – you don’t wait until it’s full of leaks.
The next German Government would therefore do well to focus its policies much more on growth and investment, instead of on public consumption.
To this end, the VDA will take keen action together with many other industrial associations. The next Federal Government should agree on such a guiding model that is important to Germany’s future.