Sectoral Report of Bank Austria Creditanstalt Economics Department:
Austrian automobile trade feeling the pinch
- Turnover down in 2005 by almost 2 percent to below EUR 17 billion
- Market saturation and the declining need for replacing cars are subduing growth in new vehicle demand in the long run to under 1 percent p.a.
- Competition in vehicle trading on the rise
- Cars priced relatively favourably, but upkeep costly: consumer spending on vehicles rising
The Austrian automobile trade has little growth potential to fall back on. This is revealed by the latest sectoral report published by the economic researchers at Bank Austria Creditanstalt (BA-CA). After new car sales in Austria peaked temporarily in 1992 with 320,000 new passenger cars registered, by 2005 this figure had fallen to 308,000. New car registrations in 2005 fell by 1.1 percent in comparison to the previous year, while by August 2006 a decline of a further 0.5 percent had been recorded. Although the demand for used cars has been more balanced in the long run, the record number of used cars changing owner in 1999 amounting to 774,000 has not been surpassed. In 2005 a total of 711,000 used cars changed owner, corresponding to a fall of 0.7 percent, while there was no change in the first half of 2006.
This weak demand is fuelling competition and dampening sales in the automobile trade: average sales growth of 4 percent in the second half of the 1990s shrivelled to roughly 1 percent from 2000 to 2005. In 2005 the wholesale and retail sales of automobiles fell by almost 2 percent. "Demand for new and used cars in Austria is not set to rise much in the future either. This is due primarily to the high market saturation", according to Günter Wolf at the BA-CA Economics Department. The motorisation rate currently totals 506 passenger cars for 1,000 inhabitants and is therefore just over the Western-European average and close to the record figure of 550 passenger cars in Germany. Demand is also being subdued by the increasing quality of vehicles and the falling annual mileage. This in turn reduces the replacement need while the average age of cars is rising: in 2005 it totalled 8.9 years, up from 8.3 years a decade ago. In the short term the automobile trade is also suffering from high fuel prices and the frequent fluctuations in income caused by economic conditions.
In Austria, EUR 17 billion is generated from new and used car trading, EUR 4 billion from service activities and EUR 3 billion from the spare parts business. The market is divided up between roughly 1,900 brand dealerships and 1,400 independent, principally used-car, dealers, with 3,500 workshops and 1,000 spare part traders. Many brand dealers have disappeared from the market or been taken over by competitors, particularly since the beginning of the Block Exemption Regulation (BER) reform in 2003. According to BA-CA economist Günter Wolf: "Predatory pricing in the automobile trade will not wane over the coming years, thanks to the persistently weak demand, the sales drives still on the horizon and the generally precarious income positions of the dealers. After 2010 competition will presumably increase further, when the BER disappears completely, as planned, and the automobile market is fully liberalised just like most of the product markets in the EU."
Despite the relatively weak growth of passenger car demand, the car is gaining in status with consumers: 15 percent of their consumer spending is invested in buying and maintaining their private vehicles, up from 13.8 percent in 2000. Per month an average Austrian household spends EUR 174 on the car purchase, but a further EUR 206 on repairs, spare parts, taxes, insurance and fuel. If we take into account the rather "consumer friendly" development of car prices in recent years, not least thanks to competition and price pressures throughout the industry, the additional spending for buying passenger cars can be attributed to the growing demand for more powerful passenger vehicles and better equipped diesel cars. While fuel costs grew by 14 percent between 2000 and 2005, and the costs for car repairs and services increased by 16 percent, the price of cars rose only by 7 percent. By contrast, consumer prices increased by a total of 11 percent.
Enquiries: Bank Austria Creditanstalt Press Department, Austria
Tiemon Kiesenhofer, Tel. +43 (0)5 05 05 Ext: 52819
E-mail: tiemon.kiesenhofer@ba-ca.com