Germany Autos Report Q3 2008

The German auto industry has been a victim of the CO2 emission debate for quite sometime now, especially with France. However as BMI examines in its newly published Q308 Germany Auto Report, a major breakthrough was achieved when Europe's two major auto markets reached a deal to support the European Commission (EC)'s goal of cutting average carbon dioxide emissions to 120g/km for new cars by 2012. For Germany - which has been struggling due to its luxury car dominated industry - the deal comes with provisions for a flexible transition to make it easier for carmakers to adapt to the new emission norms.

In 2008, increased risk in the financial markets, tighter credit and negative expectations about the euro continue to hurt consumer spending. Germany sold 1.05mn cars by the end of April 2008, which is 7% higher year-on-year (y-o-y). Though figures indicate an increase over the 2007 sales, BMI believes 2007 sales were themselves at vey low levels, owing to the introduction of a new higher rate of value-added tax on January 1 2007.

BMI is cautious about the future development of Germany's car market, particularly given that the current operating problems in Western Europe are set to continue in 2008. We maintain our earlier forecasts of sales remaining lower by almost 5% in 2008. Overall production is expected to be higher at 6.3mn units, including passenger cars and commercial vehicles, with a major boost coming from commercial vehicle output which is expected to increase by almost 6.5% by the end of 2008.

In industry developments, the legal battle between the state of Lower Saxony's blocking minority stake in Volkswagen (VW) and Porsche has somewhat cooled down as Porsche increased its stake in VW from 31% to 35%. This temporarily suspends the EC's verdict on the takeover issue and for Porsche, the bid allows it to extend its influence in the much-anticipated merger between MAN and Scania.

Increased demand for cars with lower carbon dioxide emissions helped German carmakers like VW, BMW and Daimler make a gain of almost 22%. VW led the market selling 206,819 units, up 19.6% by the end of April 2008. The second and the third highest players in the market were Mercedes and Opel selling 115,685 (up 11%) and 93,292 (up 8.9%) vehicles respectively.

The industry also saw some noteworthy improvements in the hybrid technology with the announcement of a joint venture between Audi and Sanyo to develop a pilot hybrid project for the Volkswagen Group.

German supplier ZF Friedrichshafen AG has also recently opened its new facility for volume production of hybrid modules in Schweinfurt, Germany. The new mass production unit is the first of its kind for hybrid drive modules in Europe and will start volume production by Q408.