Europe’s Auto Rebound Hampered by German Vote Uncertainty
Volkswagen AG (VOW), PSA Peugeot Citroen (UG) and Ford Motor Co. (F) haven’t taken a stand on German Chancellor Angela Merkel’s bid for a third term in September. They just want the election to be over.
Any recovery in European auto sales from a six-year slump will hinge largely on Germany, where consumers have been wary of buying cars ahead of the vote that recent polls show as likely to result in no clear winner.
“There’s a level of hold-off in Germany because of the elections,” said Allan Rushforth, chief operating officer for Hyundai Motor Co. (005380) in Europe. With uncertainty over tax policies that might affect purchasing power, politics is “more of a factor for the consumer than in the past.”
Germany, which accounts for almost one in four cars sold in Europe, has avoided the recession that has plagued other euro-zone countries. Strong exports to Asia and the U.S. have kept the job market stable. At 6.9 percent, Germany’s jobless rate stands near a two-decade low, while consumer confidence is on the upswing.
That economic resilience isn’t reflected in the auto market. Car sales in Europe’s biggest economy slumped 9.9 percent in May and are off 8.8 percent so far this year, according to Germany’s motor vehicle office KBA.
“People are waiting to see what happens” with the election, said Ian Robertson, head of sales and marketing at Bayerische Motoren Werke AG’s BMW brand. “It’s not a matter of other economic issues: unemployment is still low, the economy is moving quite strongly.”
With the debt crisis bringing fiscal discipline to the forefront, politicians are promoting policies that ease budget deficits, which may mean less take-home pay for some.
Social Democrat Peer Steinbrueck, Merkel’s leading challenger, is campaigning to close the wealth gap between rich and poor by raising taxes on top earners and setting a minimum hourly wage. Merkel has said she’ll keep taxes stable. Germany’s willingness to pump more money into aiding debt-hobbled European neighbors is also a key election issue.
“There’s a war of words going on in Germany about which direction we should head in Europe,” said Peter Fuss, senior advisory partner at Ernst & Young in Eschborn, Germany.
Neither Merkel’s Christian Democratic Party nor the SPD have enough support to build a ruling coalition with their preferred partner, according to a poll published yesterday by Bild, Germany’s largest newspaper.
“Sure, I’d like to get a new car, but I don’t want to expose myself too much financially,” said Manfred Dobiasch, a 65-year-old former printing press worker from Berlin, who owns a 2005 Mercedes-Benz A-Class. “My car’s approaching its sell-by date, but you need to make sure you have money for other things and not stick it all in a car.”
The impact of the German election will ripple well beyond the country’s borders. Italian tiremaker Pirelli SpA (PC) is holding back on updating its business plan until November to get a better read on Germany’s future and what that might mean for the rest of Europe.
“Berlin economic policy after the elections will be important to understand what role Europe will play on the world stage,” Pirelli Chairman Marco Tronchetti Provera told reporters in Venice on June 7.
After the Sept. 22 election, greater clarity on policies could spark a tentative rebound in the region, with slow growth starting in the fourth quarter, according to Hyundai’s Rushforth. But few expect a quick return to pre-crisis levels.
“It will take three to four years” to see a real recovery in the European car market, Fiat SpA (F) Chief Executive Officer Sergio Marchionne told reporters June 8 in Venice. “The rebound will start before, but to grow, you will need some time.”
LMC Automotive forecasts sales in western Europe will start rising toward the end of this year, though not enough to show growth for 2013. Next year, LMC predicts a gain of 0.5 percent and then 4 percent in 2015. It will take at least two years after that before the market reaches its pre-crisis level of 14.8 million vehicles -- 23 percent above this year’s forecast.
After six years of contraction, a lack of bad news is the equivalent of good news -- which has given a boost to some auto stocks. The Euro Stoxx autos and parts index has climbed 7.7 percent this year, led by gains by Fiat, Renault SA (RNO) and Peugeot, among the hardest hit by the crisis.
“There’s a certain insecurity that emerges” before a major vote, Luca de Meo, head of sales and marketing at VW’s Audi, said in an interview in Paris yesterday. “Everything happens one or two months before the election, so we will see this summer which way things are heading.”
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