Wednesday, January 16, 2013

16/1/2013: Irish Car Sales and German Exports Declines

Latest data from Ireland on new vehicles purchases is quite revealing of the broader problems faced by the German economy - a snapshot of what happens to exporting engine when demand in its trading partners slumps.

Let's run through some numbers.

  • Overall demand for new vehicles in Ireland has fallen off the cliff in recent years. In 2007 we imported 180,754 new private cars, of which 54,703 came from Germany. Of all German cars imported, 17,394 came from 'luxury' carmakers (Audi, BMW, Mercedes and Porsche). In 2012 we imported 76,256 cars, or 57.8% down on the peak. Of the cars we did import, German automakers accounted for 23,529 vehicles, with German 'luxury' carmakers selling 8,728 vehicles here. 
  • In summary, 2007-2012 changes in cars imports were -57.8% for all vehicles, -30.3% for Audi, -51.8% for BMW, -65.8% for Mercedes, - 69.1% for Opel, -84.5% for Porsche and -53.5% for Volkswagen.
  • Between 2007-2011, due to aggressive sales promotions and due to skew to the income distribution in Ireland (preserving higher-range incomes more than mid-range), German car makers have managed to increase their share in the overall Irish market, with all German manufacturers' combined market share rising from 30.3% in 2007 to 30.9% in 2012, and 'luxury' makers' share rising from 9.6% in 2007 to 11.4% in 2012.

Nonetheless, there is huge opportunity cost of Irish recession to German automakers. Let's make some assumptions and estimate this cost:
  1. Since 2000 and 2007 represent two peak years in terms of cars demand pre-crisis, dropping them from consideration, let's take an annual average demand for 2001-2006 as the 'old normal'. This amounts to 157,261 annual vehicles sales in total, of which 12,814 vehicles sales should accrue annually to German premium car makers and 41,166 sales to all German car makers.
  2. Using the above average, we can estimate cumulative sales losses over 2009-2012 as 326,515 total vehicles not sold by all car makers, 75,626 vehicles not sold by all German carmakers and 20,863 vehicles not sold by German 'luxury' or premium car makers.
  3. Assume that, on average, a new vehicle in Ireland sells for EUR22,500 per vehicle, inclusive of taxes, while an average 'premium' German vehicle retails for EUR42,500 opera vehicle, average non-premium German vehicle retails for EUR22,500-27,000 range, while Porsche sells an average vehicle for EUR70,000.
  4. Based on (3) we have foregone / opportunity cost in EUR terms of cumulated EUR7,347mln for all motor trade (EUR1,837mln annual average) over 2009-2012. Of this, EUR2,275mln opportunity cost carried by all German car makers (EUR569mln annually on average), and of the latter EUR919mln cumulative (EUR230mln annual average) of the opportunity cost carried by German 'luxury' or premium car makers.

Now, let's put this into Euro-wide perspective. Obviously not all economies have experienced as dramatic collapse in sales of new cars as Ireland. But majority of economies did experience a fall-off. Given that Ireland accounts for under 2% of the euro area economy, and assuming that on average, euro area decline in sales was running at 1/10the rate of Irish market decline, German automakers should be some EUR3,100-3,200mln out of pocket on gross sales, annually, on average since 2009-2010.

The above of course is a crude calculation, as it disregards the issue of profit margins, which have probably shrunk, as car advertising had to accelerate in order to support sales. One example would be Audi, which has managed to increase its sales in the Irish market in 2012 compared to 2011 - the only German premium car makers who has managed to do this - on foot of very aggressive advertising campaigns. In addition, sales promotions and discounts, as well as sales of more smaller and less luxury models and fit-outs have also most likely contributed to lower profit margins. 

Here are some charts to illustrate the above.


The Dork of Cork said...

Its only a months data but what more significant from a euro perspective is the dramatic drop of German Regs in December (although 2 less working days this year)

I think its the lowest German Dec reg for a long time and may suggest the chickens are coming home or may not....
Dec car reg : – 16.4 %

this is 40,000~ less cars then last December………….half of the total yearly Irish consumption.

AL said...

Whilst interesting, the real issue at play in Ireland is the huge surge in the Road Tax which is a huge liability in owning a car.

Cars are now only the preserve of the public sector who get pay rises.

JeromeK said...

Your analysis is spot on. This article from WSJ confirms the impact is already being felt and with a strong Euro, 2013 will be an interesting year for them.

Windshields said...

I have always known German cars to be well put together, fast, comfortable and reliable. I have a lot of family members that own German cars and they have had them for many years with limited issues.

I personally feel that Japanese cars don't ride very well, can get really loud inside when on the highway, hear creaks and noises coming from pillars and doors are very light and flimsy. They are reliable because they lack the complexity of German cars and can keep going without much maintenance.

What do you think? Is there any truth to this statement?