Trends in the markets
TRENDS IN THE MARKETS FOR PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES
In fiscal year 2019, the global market volume of passenger cars fell below the prior-year level for the second year in a row, decreasing to 79.6 million vehicles (−4.0%). While new registrations in Western Europe and in Central and Eastern Europe exceeded the prior-year figure, the overall markets in the Middle East, North America, South America and especially Asia-Pacific recorded a dip in demand.
Global demand for light commercial vehicles in the reporting period was down moderately on the previous year.
The sector-specific environment was influenced significantly by fiscal policy measures, which contributed considerably to the mixed trends in sales volumes in the markets last year. These measures included tax cuts or increases, incentive programs and sales incentives, as well as import duties.
In addition, non-tariff trade barriers to protect the respective domestic automotive industry made the movement of vehicles, parts and components more difficult.
In Western Europe, the number of new passenger car registrations in the reporting period was up 0.6% on the prior-year figure, at 14.4 million. New vehicle registrations were mixed in the largest single markets. France (+1.6%) slightly exceeded the previous year’s figure. While Italy stagnated (+0.3%), Spain recorded a moderate (−4.7%) decline. The UK passenger car market saw a weaker continuation of the negative trend from the previous years (−2.4%). This was due, among other things, to the uncertain outcome of the Brexit negotiations with the EU. The share of diesel vehicles (passenger cars) in Western Europe slipped to 32.0 (36.4)% in the reporting year.
Despite the uncertain outcome of the Brexit negotiations between the EU and UK, new light commercial vehicle registrations in Western Europe in the reporting period slightly exceeded the prior-year level; WLTP-related pull-forward effects provided a degree of stimulus.
In the Central and Eastern Europe region, the market volume of passenger cars in fiscal year 2019 rose slightly by 2.7% year-on-year to 3.6 million vehicles. New passenger car registrations in the EU member states of Central Europe increased further by 5.8% to 1.5 million units. In Eastern Europe, passenger car sales matched the level of the previous year (+0.2%). Following a solid start in spite of the value-added tax increase as of January 1, 2019, the Russian passenger car market weakened as the year went on and was down on the prior-year figure at the end of the reporting period (−2.2%).
Registration volumes of light commercial vehicles in Central and Eastern Europe were at the same level as the previous year, while the number of vehicles sold in Russia in the reporting period was distinctly lower than in the prior year.
The Turkish passenger car market recorded a substantial drop in demand of 20.4%, largely due to the deteriorating macroeconomic situation. In South Africa (−2.7%), the number of new passenger car registrations in the reporting period was below the comparatively low level seen in recent years, also due to slow macroeconomic momentum.
New passenger car registrations in Germany in the reporting period exceeded the previous year’s high level, rising to 3.6 million units (+5.0%). In addition to the strong labor market and the rise in commercial demand, sales incentives, particularly in the form of an environmental bonus, underpinned the positive trend.
However, domestic production and exports once again fell short of the comparable prior-year figures in 2019: passenger car production decreased by 9.0% to 4.7 million vehicles, mainly due to the 12.8% drop in passenger car exports to 3.5 million units. This was primarily a result of the slowdown in global market growth and markedly lower exports of passenger cars fitted with diesel engines.
Demand for light commercial vehicles in Germany in the reporting period was perceptibly higher than in 2018.
At 20.2 million vehicles, sales of passenger cars and light commercial vehicles (up to 6.35 tonnes) in the North America region in fiscal year 2019 were down slightly on the prior-year figure (−2.3%). The market volume in the USA also fell somewhat short of the level in 2018 at 17.0 million units (−1.6%). The shift in demand from traditional passenger cars (−10.1%) to light commercial vehicles such as SUVs and pickup models (+2.6%) also continued in the reporting period. In the Canadian automotive market, the downward trend that had begun in the previous year continued during the reporting period (−4.3%). In Mexico, sales of passenger cars and light commercial vehicles fell short of the prior-year figure (−8.2%) for the third year in a row.
In the markets of the South America region, new registrations for passenger cars and light commercial vehicles decreased on the whole in 2019 to 4.3 million units (−5.0%). While in Brazil the recovery in the demand for automobiles continued, providing for a growth rate of 7.7%, new registrations, at 2.7 million, remained much lower than the record level achieved in 2012. Exports of vehicles manufactured in Brazil continued to decline, falling by 31.9% to 428 thousand units. In the Argentinian market, the deterioration in the macroeconomic situation once again had a negative impact on demand for passenger cars and light commercial vehicles, with sales figures declining drastically by 43.0%.
Following slight decreases in 2018, the market volume of passenger cars in the Asia-Pacific region weakened further to stand at 34.0 million units at the end of the reporting period (−6.0%). This was largely due to falling demand in China and India. The trade dispute with the United States weighed on the Chinese market, leading to a distinct reduction (−6.4%). On the Indian market, passenger car sales dropped 11.9% in total compared with the previous year. The Japanese passenger car market fell 2.4% short of the prior-year volume.
Demand for light commercial vehicles in the Asia-Pacific region declined distinctly as against the previous year. Registration volumes in China, the region’s dominant market and the largest market worldwide, fell markedly year-on-year. The number of new vehicle registrations in India saw a noticeable decrease versus the prior year, while in Thailand the number was on a level with the previous year.
TRENDS IN THE MARKETS FOR COMMERCIAL VEHICLES
Global demand for mid-sized and heavy trucks with a gross weight of more than six tonnes in the markets that are relevant for the Volkswagen Group was higher in fiscal year 2019 than in the previous year, with 609 thousand new vehicle registrations (+2.8%).
In Western Europe, the number of new truck registrations was up 3.1% on the prior-year figure at a total of 306 thousand vehicles. In Germany, Western Europe’s largest market, the previous year’s level was exceeded moderately. While demand in the United Kingdom rose markedly due to pull-forward effects caused by the uncertain outcome of the Brexit negotiations with the EU, demand in Italy decreased perceptibly.
The Central and Eastern Europe region saw demand recede by 6.7% to 159 thousand units owing to the deterioration in the economic climate. The Russian market contracted further as the year progressed, recording a distinct year-on-year decrease. New registrations there were down 6.9% to 73 thousand vehicles.
In fiscal year 2019, the market volume in South America rose markedly compared with the previous year, with the number of new vehicle registrations climbing 15.1% to 145 thousand units. In Brazil, the region’s largest market, demand for trucks grew very sharply compared with the relatively low figure for the prior-year period as a consequence of the economic recovery. By contrast, Argentina saw new registrations fall substantially. This was due to weak economic performance with a related weakening of the peso and rising interest rates.
Demand for buses in the markets that are relevant for the Volkswagen Group was much higher than in the previous year. The markets in Brazil as well as in Western Europe contributed in particular to this growth. Demand in Central and Eastern Europe was moderately higher year-on-year.
TRENDS IN THE MARKETS FOR POWER ENGINEERING
The markets for power engineering are subject to differing regional and economic factors. Consequently, their business growth trends are mostly independent of each other.
In 2019, the marine market contracted to a much lower level than in the previous year. Demand in merchant shipping fell, mainly due to economic uncertainty such as the trade dispute between China and the United States and to environmental requirements, for example a reduction of the sulfur content in marine fuel that became effective on January 1, 2020. Demand for cruise ships, passenger ferries, fishing vessels and dredgers remained steady. The special market for government vessels also continued on a stable trajectory. The existing overcapacity in the market curbed investment in offshore oil production and thus in new ship construction in this segment. Plans for tighter emission standards resulted in a positive trend toward gas-powered or dual-fuel-engined ships. China, South Korea and Japan remained the dominant shipbuilding countries, accounting for a global market share of 85% measured in terms of the number of ships. Because market volumes are still low, all segments in the marine market were continuing to experience significant competition and strong pricing pressure as a result.
The market for power generation continued the positive trend seen in 2018. Higher demand was registered in all areas of application, in particular for gas. This confirms the shift away from oil-fired power plants towards dual-fuel and gas-fired power plants. Demand for energy solutions remained high, with a strong trend towards greater flexibility and decentralized availability. The economies of key emerging markets developed positively. However, continued strong pressure from competition and pricing was discernible in all projects, having a negative impact on the earnings quality of orders. Furthermore, order placement was often delayed due to persistently difficult financing conditions for customers, particularly in emerging markets.
In 2019, the market for turbomachinery showed a pronounced improvement year-on-year. Demand for turbo compressors in the raw materials, oil, gas and processing industries recovered steadily over the year, buoyed by pent-up demand following several years of muted investment. The steam and gas turbine business continued to be dominated by overcapacity on the part of electricity producers and recorded only a slight improvement compared with the previous year. Pressure from competition and pricing eased somewhat year-on-year, and there were signs of a recovery as a result of improved use of market participants’ engineering and manufacturing capacity.
The marine after-sales business for diesel engines performed positively and benefited from a continued increase in interest in long-term maintenance contracts and retrofitting solutions. The power plant after-sales business was negatively impacted by shifts in the energy mix and regulatory changes in key sales markets. The global after-sales market for turbomachinery registered a marked improvement year-on-year and, like new construction, benefited from pent-up demand from previous years.
TRENDS IN THE MARKET FOR FINANCIAL SERVICES
Amid a contraction in the overall market, demand for automotive financial services was again on a high level in 2019 due, among other reasons, to the persistently low key interest rates in the main currency areas. Service products such as maintenance and servicing agreements or insurance were especially popular, as customers in more advanced automotive financial services markets are putting their focus on reducing total cost of ownership. In the fleet segment, more customers elicited the support of automotive financial service providers in order to optimize their entire mobility management beyond mere fleet operation. There was also increased demand from both private and business customers for mobility services centered on vehicle usage rather than on ownership.
Overall, a small increase in the demand for new vehicles was recorded in the European market in 2019. As a consequence, the number of new lease and financing contracts signed also increased slightly. The share of loan-financed or leased new vehicles remained stable in France and Spain, while Italy saw significant volume growth. Sales of used vehicles in Europe rose somewhat, while a minor decrease was recorded in lease and financing contracts for used vehicles. There was increased demand for after-sales products such as servicing, maintenance and spare parts agreements in 2019. The number of automotive-related insurances grew modestly.
In Germany, the share of loan-financed or leased new vehicles was lifted further in the reporting period. There was also greater demand for after-sales products and integrated mobility solutions in the business customer segment.
In South Africa, demand for financing and insurance products fell slightly.
In the markets of the USA and Mexico, demand for automotive financial services remained at a high level in 2019. In the USA, demand for leasing through captive financial services products in particular was consistently high.
In Brazil, the consumer credit business was in line with the restrained positive trend seen in 2018. However, the country-specific financial services product Consorcio, a lottery-style savings plan, saw falling sales. Nearly half of the new vehicle sales were covered by financial services products in the reporting period. In the Argentinian market, the sharp rise in interest rates resulting from the most recent economic crisis posed a challenge for sales of financing and leasing products.
Demand for automotive financial services across the Asia-Pacific region was mixed in 2019. In China, new contract growth slowed as a result of the downturn in vehicle sales. The relaxation of existing restrictions on registrations in metropolitan areas, in addition to the situation in the interior of the country and for the used vehicles market, offers great potential in terms of acquiring new customers for automotive-related financial services. Demand for financial services products was slightly weaker in India and in Japan.
The demand for financial services in the Commercial Vehicles Business Area also varied from region to region. In Europe, financial services including after-sales registered a slight increase compared to 2018. In Brazil, the truck and bus business and the related financial services market recorded strong growth.