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Annual Report

Global automotive industry performs better than expected

2010, global passenger car sales rose by 11.4% to 58.7 million vehicles. Having achieved the second best sales volume of all times, the industry only narrowly missed the record level of the pre-crisis year 2007. The Asia-Pacific region proved to be the most important growth driver, in particular because the number of new passenger car registrations rose faster than average in China. North and South America also reported significantly stronger demand than in the previous year. However, sales of new cars declined in the European market. Although the Central and Eastern Europe region saw an increase in new passenger car registrations, especially because of rapid growth in Russia, Western Europe fell far short of the previous year’s result. One of the reasons is the strong decline in demand for passenger cars in Germany after the scrapping premium expired. The South African automotive market returned to growth following three years of contraction.

Sector specific environment

The established markets were heavily influenced by government economic stimulus programs in 2010. The shift in demand toward small vehicles triggered by these programs was reversed when the premiums ended. Catch-up purchases resulting from delayed purchase decisions contributed to a rise in the Volkswagen Group’s sales and resulted in a gain in market shares. Government incentives significantly reduced the risk of major declines in individual markets. The weakening of the euro in 2010 improved export prospects into countries outside the euro zone. The systematic development of the major markets in China and Brazil, the expansion of activities in India and the ability to meet demand in Russia, which is back on a growth path, are becoming increasingly significant factors for the automotive industry.

Asia, Africa and Latin America are showing signs of further easing in free trade. By adopting active manufacturer and dealership risk management and closely cooperating with financial service providers, we succeeded in overcoming the impact of the global economic crisis.

VOLKSWAGEN GROUP DELIVERIES BY MONTH
Vehicles in thousands
Volkswagen Group deliveries by month (line chart)

North America

In the North American market, demand for passenger cars and light commercial vehicles (up to 6.35 tonnes) in fiscal year 2010 was 10.4% higher than in the previous year, although buyer interest had been very depressed in that year. Demand for automobiles was revived in particular by the economic recovery in the USA. The year-on-year increases recorded by the automotive industry in the US market were attributable to both passenger car sales (+5.2% to 6.0 million units) and light commercial vehicle sales (+18.2% to 5.6 million units). Nevertheless, new registrations reached their second-lowest level in 28 years. In Canada, the reporting period’s sales volume rose by 6.6% to 1.6 million vehicles. Sales figures in the Mexican market also rose by 8.7% year-on-year to 0.8 million units.

South America

In South America’s automotive markets, vehicle sales rose in 2010 compared with the previous year and even exceeded the previous record dating from 2008. Likewise, sales in Brazil reached a new high in 2010. The main reason for this positive development was the government’s economic stimulus program, which drove the 10.6% increase in new registrations to 3.3 million passenger cars and light commercial vehicles. At 767 thousand units, Brazil’s vehicle exports recorded their first year-on-year increase (+61.4%) since 2005. The Argentinian passenger car market also benefited from the good performance of the automotive industry in South America: passenger car sales increased significantly, by 27.6%, to 483 thousand vehicles in 2010, thus exceeding the previous record achieved in 2008.

Asia-Pacific

Asia-Pacific was by far the fastest-growing region in the past fiscal year. The Chinese passenger car market achieved the highest absolute increase in sales for the ninth year in succession. A rise of 3.0 million to 11.5 million vehicles (+35.1%) represents another significant increase in the number of new passenger car registrations. Domestic sales benefited above all from government incentives. In Japan, new passenger car registrations in the reporting period amounted to 4.2 million vehicles, an increase of 7.4% compared with the very low level of the previous year. The downward trend of the previous years has thus been halted. Tax breaks and scrapping premiums buoyed Japan’s new vehicles business until September 2010. The Indian passenger car market achieved high double-digit growth rates in the reporting period: sales increased by 29.8% year-on-year to 2.2 million units. Higher income levels and an expanded model range – especially in the mini and small car segment – fueled the upturn.

Europe/Remaining markets

In Western Europe, demand for passenger cars declined as expected in 2010, falling by 5.1% to 13.0 million vehicles. The sharp declines, especially in the second half of the year, resulted mainly from the expiry of government economic stimulus programs. In 2009, these programs had encouraged customers in most Western European countries to bring forward their purchases. Among the high-volume markets, only the UK (+1.8%) and Spain (+3.0%) recorded moderate increases; by contrast, the industry contracted in France (–2.6%), Italy (–9.2%) and above all Germany (–23.4%). The market share of diesel vehicles in Western Europe rose again significantly year-on-year in 2010, but at approximately 52.0% (previous year: 46.0%) this was still short of the previous high of 53.3% reached in 2007.

In the Central and Eastern Europe region, new passenger car registrations recovered only modestly from the sharp fall in demand in 2009; although the market as a whole expanded, this was almost exclusively due to the rebound in the Russian automotive market. In the past fiscal year, passenger car sales increased here by 29.0% to 1.8 million units. The increase is above all due to an ongoing government incentive program, which provides subsidies and favorable loans when buying a new vehicle manufactured in Russia. Fewer passenger cars were sold in 2010 than in 2009 in the Central European EU member states. Declines were recorded in the markets in Hungary (–32.4%), Romania (–17.0%) and Slovakia (–14.3%), but there were increases in Poland (+1.8%) and the Czech Republic (+0.7%). In Turkey, passenger car sales exceeded the previous year’s figure by 37.8%.

With an increase of 29.8% to 335 thousand units, demand for passenger cars in the South African market expanded for the first time in four years, due to improved financing conditions among other factors.

Germany

New passenger car registrations in Germany fell by 23.4% in fiscal year 2010 to 2.9 million vehicles. The main reason for this sharp decline to the lowest combined market level since German reunification was that purchases had been brought forward as a result of the scrapping premium offered in 2009. The German commercial vehicle market recovered, however: with 282 thousand newly registered vehicles, the previous year’s poor result was exceeded by 16.5%. Sales of trucks with a gross weight of up to 6 tonnes rose by 16.3% to 197 thousand units. Driven in particular by strong demand from abroad, German manufacturers increased the production of passenger cars and commercial vehicles at their German plants by 13.4% to 5.9 million units; this also resulted in an above-average increase in exports by 25.0% to 4.5 million vehicles.

SIGNIFICANT INCREASE IN DEMAND FOR HEAVY TRUCKS

After the collapse in sales in the crisis year of 2009, demand for heavy trucks with a gross vehicle weight in excess of 15 tonnes increased – with varying growth rates – in all the regions of the world in the past fiscal year. While the large sales markets of China, India and Brazil even reported new records, the markets in Western Europe, the USA and Japan remained well down on pre-crisis levels. Global sales of trucks rose by 51.0% to a total of 1.8 million vehicles.

Although the market decline that had persisted in the USA since 2007 was halted, the 13.0% increase to 107 thousand units compared with the previous period’s historic low does not yet signal a lasting recovery.

In the Brazilian market, increased investment activity and the government’s incentive programs drove sales up by 52.2% to 102 thousand vehicles in 2010.

In China the strong growth of the past few years continued undiminished. With an increase of 68.6% to 1.0 million units, more than half of global sales of heavy trucks were generated in China. In India, by now the world’s second largest market for heavy trucks, the growth in industrial production led to a 96.7% increase in sales to 173 thousand vehicles. In Japan, government incentives drove up new registrations by 33.2% to 25 thousand units.

In Western Europe, demand for heavy trucks recovered from the poor prior-year level: new registrations increased by 0.9% to 153 thousand vehicles in 2010. In Central and Eastern Europe, sales increased by 17.8% to 69 thousand units from an extremely low base in the previous year.

DEMAND FOR FINANCIAL SERVICES

Demand for automobile-related financial services developed unevenly in the individual global markets in the reporting period. Developments in the emerging markets offer excellent growth opportunities for automotive financial services. The positive market trend in China highlights this prospect. There is potential to acquire new customers for automobile financing, as at the moment only around 10% of vehicle purchases are loan-financed.

In the USA, the market for financial services grew due to increasing demand for leasing and loan offerings, while there was a recovery in the residual values of used cars. In Brazil, the market for financial services is well developed. In addition, tax breaks in 2010, mainly resulting from the incentive program from the National Bank for Economic and Social Development, which was newly launched in July 2010, were the main factor leading to increased business volume. In Mexico on the other hand, development of vehicle finance saw an overall decline. Many financial services providers associated with manufacturers recorded a decline in their penetration rates.

Demand for financial services is expected to continue to rise in India. In Japan, sales of new financial services products continued to increase.

In Europe, demand for automotive financial services grew extremely positively in 2010, despite the expiry of government economic stimulus programs. This is mainly due to a backlog in demand in the business segment.

After the scrapping premium had driven up growth in automobile sales and thus in vehicle financing in Germany in 2009, demand among private customers declined overall in 2010. By contrast, automotive financial services providers benefited from the increased recovery in the business fleet business over the course of the year. The leasing industry recorded growth again in Germany in 2010. In addition to the positive development in commercial vehicle leases, the increased volume of passenger car leases was a contributing factor.

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