At last week’s Frankfurt Motor Show, there was lots of talk about the future of the European car market. However, scratching the surface showed that what car industry executives really meant was the future of the German car market.
Germany has just come to the end of a mini-boom thanks to a generous €2,500 scrappage scheme (August sales were up 28%), but it is now staring over the edge of a cliff.
If it falls, it could drag the whole European market with it. In 2009, the German market is expected to hit 3.8 million sales, but that could fall to 2.8 million in 2010.
A decline of one million units is likely to dwarf any recovery elsewhere in Europe – even assuming other markets do recover.
This is seriously worrying car bosses. Only a few weeks ago, the boss of the German VDA (the German industry association) said: “We are not demanding any new subsidies after the scrapping bonus.”
Yet, at Frankfurt car companies were openly calling for just that.
The boss of one car company said a significant number of German dealers could be facing bankruptcy in 2010 and added that they were lobbying hard for a transitional arrangement that would give the German market a soft landing.
However, speaking privately, another top executive said the German government was unlikely to help: “They feel they have done quite enough for the car industry one way and another and feel it is time they stood on their own two feet.”
So what effect does that have on Britain? Clearly a major decline in Germany will affect demand for British-built cars such as the Astra and the Civic, not to mention component suppliers, including Ford’s big engine plant.
That is one of the reasons the industry is now lobbying Peter Mandelson to extend the British scrappage scheme – anything that can partially offset problems in Germany is welcome.
On this front, quite a few executives sounded cautiously optimistic: “What else can the Government point to that has been an economic success in the last year?” was one barbed comment from a chief executive.
Given the scheme is at least self-financing in cash terms (the VAT received is as high as the subsidy), even before the employment benefits are taken into account, the hope is that the Government will relent.
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