Trends in the markets
TRENDS IN THE PASSENGER CAR MARKETS
In fiscal year 2018, the global market volume of passenger cars fell slightly below the prior-year level to 82.8 million vehicles (−1.2%) after increasing for eight years in a row. This decrease was attributable in particular to weaker performance in the Western Europe and Asia-Pacific regions in the fourth quarter. In the reporting period, stronger demand in Central and Eastern Europe as well as in South America was offset by declining volumes in the Asia-Pacific, Middle East, North America and Western Europe regions.
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 total number of new passenger car registrations in the reporting period was down 0.7% in total on the prior-year figure, at 14.2 million. The continuing strong macroeconomic environment, positive consumer sentiment and low interest rates generated a slight increase in the first half of the year. The changeover to the new WLTP (Worldwide Harmonized Light-Duty Vehicles Test Procedure) as of September 1, 2018 led to pull-forward effects in the months of July and August and to significant declines from September until December in some cases. New vehicle registrations were mixed in the largest single markets. Spain (+7.0%) and France (+3.0%) continued to record increases. Both countries benefited from a buoyant macroeconomic environment. In Italy, falling demand from both private and commercial customers put a damper on market development (−3.1%), among other things, as a consequence of the political uncertainty during and after the formation of government. The UK passenger car market saw a continuation of the negative trend from the previous year (−6.8%). 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 36.4 (44.4)% in the reporting year.
In the Central and Eastern Europe region, the market volume of passenger cars in fiscal year 2018 rose markedly by 11.0% year-on-year to 3.4 million vehicles. New passenger car registrations in the EU member states of Central Europe increased further by 8.0% to 1.4 million units. Passenger car sales in Eastern Europe also achieved a double-digit growth rate (+13.1%), starting from a low level. The Russian market was the main growth driver in the region with an increase of 13.2%. This was mainly attributable to government programs to promote sales as well as to pull-forward effects resulting from a value-added tax increase entering into force on January 1, 2019.
The Turkish passenger car market recorded a substantial drop in demand of 32.7%, largely due to the rapidly deteriorating macroeconomic situation. In South Africa (−0.1%), the number of new passenger car registrations in the reporting period stayed at the comparatively low level seen in recent years. The change in political environment as a result of the new presidency had little positive impact on the overall economy and the automotive market.
Amounting to 3.4 million units (−0.2%) in the reporting period, passenger car registrations in Germany sustained the previous year’s high level. This was attributable not only to the buoyant macroeconomic environment but also to manufacturer discounts in the form of trade-in and scrapping bonuses for older diesel models as well as to an environmental bonus for electric-powered vehicles (all-electric and plug-in hybrid drives). The changeover to the WLTP test procedure as of September 1, 2018, which limited model availability in some cases, in total led to a slightly declining overall market, whereas the rise in new registrations for private customers (+2.0%) in particular had a positive effect.
Domestic production and exports once again fell short of the comparable prior-year figures in 2018: passenger car production decreased by 9.3% to 5.1 million vehicles, while passenger car exports fell by 8.9% to 4.0 million units. This was primarily caused by declining volumes in Europe resulting to some extent from the changeover to the WLTP.
At 20.7 million vehicles, sales of passenger cars and light commercial vehicles (up to 6.35 tonnes) in the North America region in fiscal year 2018 did not match the high prior-year figure (−0.6%). In the US market, demand was almost flat on the 2017 level at 17.3 million units (+0.2%). A favorable labor market and the greater purchasing power of consumers largely compensated for increased financing costs resulting from higher interest rates. The shift in demand from traditional passenger cars (−13.5%) to light commercial vehicles such as SUVs and pickup models (+8.1%) also continued in the reporting period. Due to sales figures, which had declined since the second quarter, the Canadian automotive market remained below the record figure of the previous year (−2.6%). In Mexico, sales of passenger cars and light commercial vehicles fell short of the prior-year figure (−6.6%) for the second year in a row.
In the markets of the South America region, the recovery continued in the reporting period – starting from a low level – with demand for passenger cars and light commercial vehicles rising by 6.2% to 4.5 million units. The main driver was the Brazilian automotive market, whose 13.8% growth outperformed the strong momentum of the preceding year. However, the market volume was still around a third lower than the record figure for 2012. Brazil’s vehicle exports declined to 629 thousand units in the course of 2018, a decrease of 17.9% on the previous year’s record high. Particularly from mid-year onwards, exports were impacted by the market trend in Argentina, where demand slumped on account of the progressive deterioration of the macroeconomic situation (−10.4%).
After many years of uninterrupted growth, the market volume in the Asia-Pacific region decreased by 2.3% in fiscal year 2018 to 36.1 million units. This was mainly due to the weakness of the Chinese passenger car market (−4.6%). The trade dispute between China and the United States of America in the reporting period weighed on business and consumer confidence, among other things, and led to a marked decline in demand, especially in the second half of the year. By contrast, the Indian market continued growing and achieved a new record with a 4.8% increase in passenger car sales year-on-year. Alongside attractive financing products, the positive trend continued to profit from the goods and services tax introduced on July 1, 2017, which resulted in part in improved purchasing conditions for the consumer. The Japanese passenger car market almost matched the volumes recorded in the previous year (−0.4%).
TRENDS IN THE MARKETS FOR COMMERCIAL VEHICLES
Overall demand for light commercial vehicles in fiscal year 2018 was slightly lower than in the previous year. A total of 9.0 (9.2) million vehicles were registered worldwide.
Despite the uncertain outcome of the Brexit negotiations between the EU and the UK, new registrations in Western Europe were up 2.8% to 2.0 million units. In Germany, the comparative figure for 2017 was exceeded by 6.0%. The market in Spain grew distinctly and the market in France recorded moderate growth, while Italy and the United Kingdom registered a decline.
The markets in Central and Eastern Europe grew noticeably on the whole, with 352 (324) thousand light commercial vehicle registrations including 130 (124) thousand in Russia alone. Most of the markets in this region succeeded in maintaining or exceeding their prior-year results.
In North and South America, the light vehicle market is reported as part of the passenger car market, which includes both passenger cars and light commercial vehicles.
Registration volumes of light commercial vehicles in the Asia-Pacific region decreased to 6.0 million units (−2.7%) in the reporting period. In China, the region’s dominant market and the largest market worldwide, demand for light commercial vehicles of 3.0 million units was down 12.0% on the prior-year figure. This decline is mainly due to the shift in demand for micro vans towards more cost-effective MPVs and SUVs. As a consequence of the sustained economic growth, new registrations in India increased sharply compared to 2017; here, 710 (575) thousand new units were registered. The market volume in Japan rose by 3.2% to 770 thousand vehicles. The number of new vehicle registrations in Thailand and Indonesia saw a significant increase versus the previous year.
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 2018 than in the previous year, with 591 thousand new vehicle registrations (+6.6%).
In Western Europe, the number of new truck registrations exceeded the prior-year figure by 2.2% at a total of 297 thousand vehicles. In Germany, Western Europe’s largest market, the previous year’s level was also exceeded slightly. While demand in the United Kingdom and in Spain witnessed a decline, it rose in France and Italy.
The Central and Eastern Europe region saw demand rise by 6.0% to 169 thousand units on the back of the positive economic performance. The Russian market deteriorated as the year progressed and recorded only slight year-on-year growth over the year as a whole. New registrations there increased by 2.6% to 78 thousand vehicles.
In fiscal year 2018, the market volume in South America rose compared with the previous year. Here, the number of new vehicle registrations rose by 19.5% to 125 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 by more than a quarter. 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 slightly higher than in the previous year. The markets in Brazil as well as in Central and Eastern Europe contributed in particular to this growth. Demand in Western Europe was slightly down on the previous year’s level.
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.
The marine market remained at the previous year’s low level in 2018. Steady demand in merchant shipping was largely based on orders of container ships and LNG carriers. Demand for cruise ships, passenger ferries, fishing vessels and dredgers also remained steady. The special market for government vessels also continued on a stable trajectory. The existing overcapacity in the market continued to curb investment in offshore oil production and thus in new ship construction in this segment. Planned 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 more than 85% measured in terms of the number of ships. Because market volumes are still low, all segments in the marine market are continuing to experience significant competitive pressure and a sharp drop in prices as a result.
The market for power generation showed a slight recovery compared with the previous year. Higher demand was registered in all areas of application, for gas in particular. 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 recovered somewhat. 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 on larger projects.
In 2018, the market for turbomachinery improved somewhat year-on-year. Demand for turbo compressors in the raw materials, oil, gas and processing industry increased slightly but remained volatile owing to political uncertainty. The steam and gas turbine business continued to be dominated by overcapacity on the part of electricity producers; however, signs pointed towards a slight recovery, especially in regions with a low level of electrification. Although pressure from competition and pricing was somewhat lower than in the prior-year period, the overall level remained high due to existing overcapacity and market volatility.
The marine and power plant after-sales business for diesel engines performed positively overall and benefited from a continued increase in interest in long-term maintenance contracts and retrofit solutions. The after-sales market for turbomachinery remained under pressure, impacted by a price war and competition to improve efficiency. It is recovering, but only slowly.
TRENDS IN THE MARKET FOR FINANCIAL SERVICES
Demand for automotive financial services was once again high in 2018 in a slightly shrinking overall market. 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 optimizing total cost of ownership. In the fleet segment, some 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.
In Europe, sales of financial services climbed further in the reporting period, strengthened by higher vehicle sales and strong growth in financing agreements and leases. The used-vehicle market expanded, particularly in Western and Central Europe. Demand for after-sales products such as servicing, maintenance and spare parts agreements as well as automotive-related insurance also developed positively. Automotive financial services products enjoyed rising popularity, particularly in Spain and Italy, while in the United Kingdom and France demand for financial services remained high.
In the German market, the share of loan-financed or leased vehicles remained stable at a high level in 2018. Alongside traditional products, integrated mobility services in the business customer segment and after-sales products were particularly popular.
In South Africa, demand for automotive financial services products was stable.
Sales of automotive financial services in North America remained at a high level in the past fiscal year. In the USA, the overall market for financial services products once again performed well; above all, demand for leasing through captive financial services products was consistently high. Automotive financial services products were also popular in Mexico.
Brazil continued to witness a recovery in 2018 despite the political tensions. Sales of vehicle financing arrangements and the country-specific financial services product Consorcio, a lottery-style savings plan, as well as of insurance and other services rose in the reporting period. The current economic crisis in Argentina brought the positive trend seen in 2017 to a halt. Due to the sharp rise in interest rates, sales of financing and leasing products proved challenging in 2018, though the situation stabilized somewhat at the end of the year.
The markets in the Asia-Pacific region turned in a mixed performance during the reporting period. In China, the proportion of loan-financed vehicle purchases rose. Despite increasing restrictions on registrations in metropolitan areas, there is considerable potential to acquire new customers for automotive-related financial services, particularly in the interior of the country. Demand for automotive financial services rose in the Indian market. It was stable on the whole in Japan and South Korea. In Australia, amid a slight downturn in the vehicle market, demand for financial services products remained high.
In the commercial vehicles segment, the European market for financial services again performed well; demand for these products was also high in China. The economic situation in Brazil stabilized and the truck and bus business and the related financial services market developed encouragingly.