Statement delivered by Matthias Wissmann, President of the German Association of the Automotive Industry (VDA), at the 24th AUTOMOBIL FORUM in Ludwigsburg on 14 May 2013
Ladies and Gentlemen,
I was delighted to accept your kind invitation to this meeting in Ludwigsburg. Today’s event bears the title “Automobilstandort Europa – Auslaufmodell oder Neustart zu alter Stärke?” [“Europe as an automotive location – phasing out or new beginning with old strength?”] When we speak of Europe as an automotive location, first of all we think of production, the manufacture of passenger cars and commercial vehicles, of the many suppliers based here in Europe who deliver to customers all over the world. And of course production is closely tied to employment.
But I think the title harbours another question: how will the European passenger car market develop in the next few years? And how will the proportions shift between the major markets – the USA, Western Europe and China – in the coming years?
Ladies and Gentlemen, these two issues belong together. Every large market – and Western Europe certainly is one – needs a correspondingly competitive production structure, it needs its own plants. From this it follows that we are facing two questions. Firstly, how competitive is Europe as an automotive location? And secondly, where is the Western European vehicle market headed? I will therefore not simply review the European market in isolation, but will indicate the major lines of development that represent challenges for the German automotive industry.
World passenger car market expanding to over 70 million units in 2013
Please allow me to begin with the markets. Given the difficult situation in Europe, this may surprise some of you, but the global prospects for the automotive year are by no means characterised solely by dark clouds. In 2013 the world passenger car market will grow by 2 per cent to 70.2 million units. This dynamism originates from the two major regions China and the USA. We expect the Chinese market to expand by 8 per cent to reach 14.3 million units. The USA will increase by 5 per cent to 15.2 million light vehicles, or even a little more.
The Western European market, however, will continue in difficult waters this year. We expect it to contract by about 5 per cent to around 11.1 million passenger cars.
I will only touch on the new EU Member States. They account for nearly 7 per cent of the Western European passenger car market. In 2013 their volume will shrink by 2 per cent to around 740,000 passenger cars.
The trend for 2013 in the rest of the world remains as expected: India will show only slight growth – of 3 per cent to almost 2.9 million new cars; Japan has already completed its recovery following Fukushima and the market there will shrink by 11 per cent to nearly 4.1 million cars. Russia is hovering close to last year’s level (losing 1 per cent to 2.9 million cars), while MERCOSUR is expected to reach a good 4.3 million units (down by 2 per cent). If we take China and the USA together, in 2013 these two countries will account for 42 per cent of the global market (cf. 40 per cent in 2012). Western Europe’s share will drop to 16 per cent (from 17 per cent in 2012).
From this we conclude that those who are successful in China and North America, and serve the markets in both areas with their models, can compensate for the current weakness on the Western European market. By contrast, those who concentrate primarily on Europa as their main sales market – and are represented in China or in the USA either poorly or not at all – will feel the full force of the contraction in Western Europe. So the picture varies from one company to another. The German automotive industry embraced globalisation early on. It is in a good position all over the world and that makes it so robust. And that also safeguards production and employment in Germany.
China continues to grow
In recent years no other country has enjoyed such rapid automotive growth as China. Since the year 2000, the Chinese passenger car market has increased by a factor of twenty – from 614,000 units in 2000 to over 13.2 million new cars in 2012. This equals approximately one fifth of the world market. The volume of the Chinese market has more than doubled just since the year 2008 (5.7 million passenger cars), and the potential is nowhere near exhausted. The level of motorisation in China is still relatively low. Passenger car density is 44 units per 1,000 inhabitants. By comparison, in Germany there are 530 passenger cars for every 1,000 inhabitants. Last year the Chinese passenger car market grew by 8.4 per cent. The current year also started with keen demand: in the first quarter of 2013 passenger car sales were a good 25 per cent up on the previous year, exceeding 3.9 million units. Although this growth rate cannot be maintained over the year as a whole we expect, as already mentioned, to see an increase of 8 per cent.
However, I would like to add that we have already adjusted our 2013 forecast for China upwards once; originally we expected a 6 per cent increase… The keen competitiveness of the German automotive industry is underlined by the fact that it has not only maintained its momentum in China, but the German group brands are still expanding faster than the market itself. Since 2009, we have pushed up our market share by 4 percentage points to 21.4 per cent. During the same period the German manufacturers have nearly doubled their passenger car sales in China to 2.84 million units (cf. 1.46 million units in 2009). Compared with the year 2006 (0.74 million units) we have in fact quadrupled our sales of passenger cars.
This year, too, we are doing well:
Our market share rose to 21.6 per cent in the first two months of the current year. That means more than one car in five built in China today is from a German group brand.
Of course, this success is not due solely to exports from Germany. In China – as in all other large automotive markets – we are pursuing our “two-pillar strategy” consisting of exports from Germany coupled with local assembly. From 2005 to 2012 we expanded passenger car production in China by a factor of seven, to reach 2.9 million units. Last year alone, we grew by 36 per cent (from a good 2.1 million units in 2011). And this process will be continued in 2013. China’s greatly increasing importance as a production location for the German automotive industry is shown by a longer-term comparison: in 2000 German passenger car production in China represented 9 per cent of total foreign production by German OEMs. By 2012 this proportion had risen to 35 per cent. More than one third of all cars produced by German firms at international sites outside Germany are now built in China. Another piece of evidence of the growing significance of this automotive country is that today the German manufacturers produce more cars in China than in the entire European Union (excluding Germany), where they built almost 2.8 million units in 2012. China’s share of total passenger car exports by German manufacturers has increased nine-fold since 2000. In 2012, German manufacturers exported 284,700 passenger cars to China. In that year the value of car exports from Germany to China came to a good 12 billion euro.
Right from the outset, German suppliers have supported German car makers as they became established in China, and are one of the factors making this possible as they were also present in the country from an early stage. All the major German suppliers have activities in China. In recent years medium-sized companies have also been increasingly active, as became evident once again just over three weeks ago at Auto Shanghai. The VDA was represented by the German pavilion, which included 30 German suppliers. There are now over 200 assembly plants in China belonging to German suppliers. The number of employees at German suppliers in China has increased by a good 15 per cent to exceed 70,000. And China is becoming an ever more important destination for German suppliers. In 2012 exports of parts and accessories from Germany to China had a value of 7.7 billion euro – a rise of 30 per cent compared to the previous year’s level.
Impressive dynamic on US market
Our second major strategic region is the United States. There the German group brands have been expanding faster than the market itself for seven years in succession. In the year 2012 alone, they pushed up their sales of light vehicles by 21 per cent to 1.27 million new vehicles. And in the initial months of the current year they managed to maintain this momentum: our manufacturers sold a good 8 per cent more new vehicles in the first quarter. April was most notable for the keen demand for light trucks, a segment where the German group brands achieved double-digit growth. The passenger car segment, on the other hand, was less lively – a tangible effect for our manufacturers. In the first four months of this year, our share of the light vehicle market came to 8 per cent, while in the passenger car segment the figure was well over 11 per cent.
The US market is remarkably dynamic. In 2012 it increased by a good 13 per cent, to exceed 14.4 million light vehicles. None of the experts expected such growth at the beginning of 2012. In the current year the 15 million mark will be exceeded by a good margin. The expansion is especially marked in comparison with the crisis year of 2009 – when only 10.4 million light vehicles were sold in the USA. In 2013 the US market will total around 4.8 million units more than in 2009. This corresponds to 45 per cent growth!
When in January 2010 – in the previous year the market had collapsed by more than one fifth – I said in Detroit that the USA would “remain an automotive growth market in the medium and long term,” some people thought that sounded like whistling in the dark. Yet even then the long-term growth indicators were already positive, and still are today: population growth in the USA is around 1.0 per cent per annum, while in Germany it is hovering at about zero. And the average age of US citizens, at 37, is much less than that in Germany (44).
Today there is no longer any doubt that the USA is an automotive country and will remain one. Its citizens expect and require individual mobility. They need their cars and do not want to go without them. But they are paying more and more attention to fuel consumption. And in this area in particular the German manufacturers offer tailored models whose fuel efficiency is unrivalled by any of their competitors.
One component of our US strategy is the joint information campaign for the Clean Diesel. A few months ago six German automotive companies – the passenger car manufacturers Audi, BMW, Daimler, Porsche and Volkswagen, and the supplier Bosch – launched their first ever joint information campaign for “clean diesels” in the USA. Under the slogan “Clean Diesel. Clearly Better.” they are publicising the advantages of modern diesel passenger car technology over gasoline engines in terms of cleanliness, consumption and performance. The “Clean Diesel. Clearly Better.” campaign, which was developed jointly by the VDA and our member companies, comprises a website (www.clearlybetterdiesel.org) and flanking offline activities on the US market by the companies involved.
Their common goal is to create a multi-brand information platform for clean diesels among the US population and to make the clear advantages of this technology better known using first-hand information.
Our manufacturers’ two-pillar strategy is also paying off in the USA. For example, US sales of light vehicles produced in NAFTA (USA, Canada and Mexico) increased by one third last year to 500,000 vehicles, while imports from Europe to the USA also rose. This means that the German automotive industry is also becoming more independent of currency fluctuations.
At the same time, this development underlines North America’s huge importance in the global production network and as an export hub. In all, German manufacturers in NAFTA built around 1.24 million light vehicles in 2012, a rise of 27 per cent over 2011. So more than one new car in seven built by German manufacturers abroad rolled off assembly lines in the NAFTA countries. The majority of them were destined for export; 40 per cent were sold in the USA. In the USA alone, the German manufacturers pushed up their 2012 production by over one third to 641,000 light vehicles. In addition last year, the German OEMs exported 19 per cent more cars from domestic assembly to the USA, totalling 625,000. The proportion of all German passenger car exports bound for the United States is 15 per cent, making it the second most important export partner for German car makers (after the UK). And in terms of value, exports to the USA actually take first place with the German OEMs (over 18 billion euro).
The German manufacturers employed around 31,200 people at their plants in the USA, which is 2,400 more than in the previous year. The total number of staff at the automotive manufacturers in the USA comes to roughly 172,700. This means that more than one job in six at automotive manufacturers in the USA is at a German automotive group. The number of employees at German supply companies in the USA climbed to 68,000 – this is one seventh of the entire workforce at suppliers in the United States. So in all, around 100,000 people are employed at German manufacturers and suppliers in the USA.
Situation remains difficult in Western Europe
Western Europe is currently in sombre mood. In 2012 the passenger car market shrank by 8 per cent to nearly 11.8 million new vehicles. The weakness in Western Europe – especially in Spain, Italy and France – is affecting above all manufacturers and their suppliers whose main sales markets are in Europe and who have little or no representation in the growth regions of the USA and China. Within the last five years, the Western European passenger car market has contracted by three million units. In the first quarter of 2013, there was still no improvement in sight and passenger car sales fell by 10 per cent to 2.9 million new vehicles. For the year 2013 as a whole we expect a slightly smaller decrease – i.e. a drop of 5 per cent to just over 11.1 million cars. Western Europe will therefore have a volume about three million units below its long-term average.
A rapid recovery similar to that seen on the US market in recent years will not occur in Western Europe. The process will need a lot more time because the euro zone debt crisis, which for quite a long time has had severe effects principally on France, Spain and Italy, can only be overcome with long-term structural measures: state finances have to be consolidated, debt has to be reduced, and at the same time growth potentials in the individual countries have to be stimulated. That is an enormous amount of work requiring politicians in particular to be very resolute.
The weakness in some neighbouring European states is definitely a cause for concern. We Germans need the French and the Italians to be strong, we need them economically, and we need them politically, in Brussels and for our European interests vis-à-vis competitors from Asia and North America.
The production structure within Europe is also changing. Around 862,000 cars were built in Slovakia in the past year (models from Audi, Seat, Skoda Volkswagen, Kia and PSA Peugeot Citroën) – which is more than twice as many as in Italy (around 400,000).
The 2013 forecasts for France (Consensus Forecasts, April 2013) assume that industrial production will fall (by 2.2 per cent) and unemployment will rise to 10.7 per cent. Private consumption may be expected to stagnate, and investments will go down slightly (by 1.6 per cent). These are not rosy prospects.
Among the large European automotive countries, only the United Kingdom expanded in the 1st quarter of 2013 (+7.4 per cent). In that period passenger car sales slumped by 15 per cent in France, by 11 per cent in Spain, and by 13 per cent in Italy. The German market was no longer able to disconnect completely from the generally poor economic situation in Europe and contracted by 13 per cent in the first three months. Last month did in fact bring a ray of light as new registrations in Germany rose by 4 per cent to 284,500 units. However, April 2013 had two more working days than April 2012. Overall, new passenger car registrations in Germany dropped by 9 per cent to 958,500 units in the first four months. For the year as a whole we expect to see a volume of 2.9 to 3.0 million new car registrations. In Western Europe we must prepare for a longer period of austerity. The obstacles have become much more serious.
This is also illustrated by the quarterly figures from many companies. Our manufacturers and suppliers are feeling the pinch of lower demand on “their Western European home market.” Almost half of all new cars (49 per cent) sold in Western Europe bear a German group badge. Flexibility is required. I am not revealing any secrets when I say that in many companies the number of temporary employment contracts is being reduced.
Maintain high speed of innovation
However, two points are not being changed: as in 2008/2009, we will do everything to maintain our regular workforce and will not ease off research and development investment, which amounts to more than 20 billion euro every year. The success that our companies are currently enjoying on all relevant markets around the world is primarily due to the high speed of innovation in the German automotive industry. During the crisis of 2008 to 2009 we did not reduce our R&D activities – and for this reason we now have numerous highly innovative models on the market. In Russia, China, Mexico and in MERCOSUR our market share is over one fifth in each case, and even in South Korea and Japan we have expanded our market share this year so far. We aim to continue building the best cars in the world – to the highest efficiency, quality and safety standards, and with seminal design, the greatest comfort and the most innovative connectivity. In particular “connected driving” – alongside the CO2 efficiency of drive trains – will become a selling point that tips the balance in purchasing decisions. The question of “a car or a smartphone” is now obsolete, as no other industry is integrating information and communication technologies (ICT) into its products faster and more comprehensively than the German automotive industry. And as with safety equipment, intelligent driver assistance systems are being “democratised.” Reversing cameras, adaptive forward lighting, an emergency braking assistant and on-board W-LAN – our manufacturers offer all of these features not only in the luxury segment, but have already done so in the mid-range and compact classes for a long time.
One reason the German automotive industry is so resilient is that it has been consistently pursuing its premium strategy for many years. Today the German manufacturers take 80 per cent of the global market for premium vehicles. This also benefits domestic production. In the last ten years the share of premium within assembly at home has risen from 48 per cent to 57 per cent. The growth of 265,000 units in domestic passenger car production is principally due to the strong growth in premium. The strength of the German OEMs is that they offer premium, noticeably in the lower segments also. Today premium is no longer a question of length times width times height. Today we define premium in terms of innovation and quality – in all segments.
If there is a demand in the major emerging economies, it is for branded products with the highest quality, sophisticated design and the most impressive innovations. Basically we are the Apples of the automobile world.
In Western Europe delayed sales will stack up in the medium term
It would be completely wrong to react to the weak figures in Europe by sitting around with a long face or doing nothing. Instead, the right decisions for the future have to be taken now because one thing is clear: the Western European passenger car market will not stay at this low level in the long term. What we are currently seeing is by no means “a turn away from cars.” In fact, at the moment many European households are putting off the purchase of a new car because they feel unsure. That will result in a considerable potential need for vehicles later on. It can, however, only be realised when people have prospects again, when they have regained confidence. And for that we need growth and employment in the euro zone.
In France in particular, it will be crucial for politicians to do their duty and significantly increase the country’s competitiveness. Not only the financial markets are waiting for this, so too are the insecure European consumers. In Italy’s case, to a large extent the country itself will determine whether consumers regain confidence and how quickly they do so. The recovery of the Italian automotive market will depend on that.
EU policy must focus on industry
Among the European Member States we are heavily promoting reforms to improve their competitiveness. This is a bitter but necessary pill that we had to take in Germany, too. Then things will start moving again. The solution cannot be to weaken the strong or to make Germany less competitive. Those who pursue such ideas are totally ignoring the increasing competition from Asia, which the whole of Europe is facing. Action is also required from the European institutions. We need a policy in the EU putting industry once again at the focus, instead of placing too many demands on it. Politicians’ abstract speeches of support for industry are all well and good, but in reality only concrete action on the ground can help the situation for every Member State and every measure in Brussels.
One example of this type of “overstretching” is the policy on climate action, which is being taken forward in Brussels – completely independent of the current difficult economic situation in many EU countries and without consideration of the national economic input against the environment-policy benefit. The automotive industry is working on the 95-gram target that is supposed to be achieved by 2020 according to the plans of the European Commission. This corresponds to a reduction of around one third compared with the baseline value of 141 grams of CO2 per kilometre (in 2010). We support this target and are working intensively on further reduction of CO2 emissions from our vehicles. Yet this demanding target must not be overloaded with additional red tape. Instead, all options for flexibilisation must be used to drive forward innovations at high speed. And one tool for doing this is the super credits.
A recent study confirms this position. The RWTH Aachen University has presented a study – on behalf of the German Federal Ministry of Economics – that investigated the “potentials for reducing CO2 from passenger cars by 2020.” It showed that the limit value proposed by the European Commission was a “key challenge” for the European automotive industry. The target could not be met with classical drive trains alone, the study continued, and cars with alternative drive trains would also be necessary. The costs of the complex drive train technologies “cannot be borne solely by the vehicle manufacturers themselves, but instead must be passed on to the customer”, the study emphasised. In its “realistic scenario” it calculated that buying new cars would be much more expensive for motorists, and moreover manufacturing costs for the car makers would increase considerably. And even if this higher purchase price is accompanied by lower fuel costs, according to the study it will become essential to apply “selected flexibilisation measures” such as super credits and eco-innovations, if progress is to be made. To express it simply: the 95-gram target cannot be achieved in a manner that is cost-neutral for motorists – or at best, only over a long use period. Anyone familiar with passenger car markets knows how sensitive the customers are to prices. The European Commission should therefore exhaust all the possibilities for accelerating new technological developments and creating incentives to boost progressive innovation.
Eliminating trade barriers
From the viewpoint of Germany as location for production and employment, the most important aspect is having the right general conditions for exports. Therefore we are working towards the worldwide elimination of trade barriers, while staying open to developments.
The German automotive industry will always be present wherever exciting markets exist. “Made in Germany” however remains key to the high international standing of our brands and products. For this politicians have to create the right framework.
We expect especially positive effects to come from a trade agreement between the EU and the USA. The negotiations should really be started as soon as possible. Here it is essential to reduce the regulatory obstacles. At present this is still a vision: a common EU-USA market making up roughly 40 per cent of the total global market for light vehicles! Politicians in the USA and Europe should make this vision their joint negotiation objective. If we could find common standards in this field, that is, move towards harmonisation, that would release new economic forces on both continents. It would also have an enormous impact on the rest of the world. There is potential in particular wherever standards are defined from scratch, such as in the area of electric mobility. We should shape these rules jointly from the outset.
Please allow me to summarise.
- Today the German automotive industry is in a stronger position than ever before.
- The reasons for this are early internationalisation and a consistent innovation strategy.
- Our manufacturers and suppliers themselves demand the highest quality in their products – this is a prerequisite for customer satisfaction.
- The weightings on the global passenger car market are shifting: China and the USA are expanding.
- Europe has weakened, at least temporarily. The recovery process will be strenuous and demands input from all those involved.
- Yet in the long term a considerable potential need for new vehicles at a later date is building up in Western Europe. However, this cannot be realised until the right overall conditions are in place.
- Despite the crisis, Western Europe remains an automotive region.
- Germany’s future in production lies in premium, since high labour costs render it impossible to manufacture “low entry” products here.
- The number of competing manufacturers will continue to rise (after Japan now South Korea, and in the medium term China).
- In order to make Germany strong enough to withstand the future, we need appropriate general conditions and the necessary flexibility.
- The difficulties will increase – but those who face them head-on are one step ahead.