UniCredit Bank Austria industry report on the automotive economy:
Upturn in the Austrian automotive industry still expected in 2019
- There is potential for the automotive industry to reverse the 1.1 percent decline in turnover seen in the first seven months of 2019 by the end of the year
- Further recovery is expected in the automotive industry in 2020
- Pre-registrations and other sales initiatives are putting the brakes on the cost of purchasing a passenger car
- New passenger car sales records become less likely, but vehicle stock will increase
- The car is not losing its importance in Austria, but the business opportunities in the automotive industry are gradually declining
Despite declining sales, turnover in the Austrian automotive industry still increased in 2018, by a nominal 1.9 percent to 47.3 billion euro. By July 2019, demand for passenger cars had further decelerated, resulting in a nominal turnover decline of 1.1 percent in the automotive industry. As the latest industry report from UniCredit Bank Austria on the automotive industry illustrates, there is still potential for the industry to reverse this negative trend by the end of 2019 and return to the level of the previous year.
August and September 2019 saw significantly improved business confidence levels from car dealers and a marked improvement in short-term demand expecatations, signalling an end to the downturn within the next few months. Furthermore, registrations of new passenger cars, which had fallen by 6.3 percent up to September 2019, are set to increase again by the end of the year — this set against the backdrop of the extremely sharp decline in the fourth quarter of 2018. In view of this picture, over the next few months the automotive industry is likely not only to see increased sales, but also to make modest turnover gains.
"In 2020, demand for cars in Austria is expected to continue to recover, driven by the anticipated increase in spending on consumer durables and the continued availability of favourable financing conditions. The somewhat improved consumer sentiment indicated in the latest economic survey, conducted for Q3 2019, also supports this outlook," believes Bank Austria economist Günter Wolf. Recently, the number of consumers who want to buy a car within the next year has risen slightly.
Pre-registrations and other sales initiatives are putting the brakes on the cost of purchasing a passenger car
In the long term, spending by Austrian consumers on purchasing and running a car will be driven primarily by the costs of servicing and fuel. The cost of servicing a car increased by 43 percent between 2008 and mid-2019, with fuel and lubricant prices rising by an average of 3 percent — while consumer prices increased by 21 percent. By contrast, the cost of purchasing a new or used car has barely increased, and since 2008 has actually decreased by 3 percent despite the sharp increase in demand for more powerful and often more expensive vehicles. In the last five years alone, the share of new passenger cars registered in the highest engine performance class of 126 kilowatts and above has increased from 11 percent to more than 14 percent.
The relatively weak development in the cost of purchasing a passenger car is, among other things, a symptom of factors such as the strong discount culture in the automotive retail industry. This, in turn, is indicative of the strong competition and considerable price pressure that exists among manufacturers and in automotive retail itself. Furthermore, structural changes are slowing down the price trend for new cars, in the sense that the majority of passenger cars being registered for the first time are actually entering the market as reduced-price demonstration vehicles, nearly new pre-registered cars or lease cars (38 percent of newly registered passenger cars in 2018 were leased).
The likelihood of achieving record sales is set to decrease in future, while vehicle stock will increase
In line with the growing degree of motorisation, private transport and the car have hardly lost any of their high social status. As recently as 2018, when the car market in Austria slipped into the red after a registration record in 2017, 341,100 new cars were registered, the third highest number ever registered. In this respect, the 6.3 percent decrease in registrations up to September 2019 can be interpreted as the automotive market manoeuvring into a long-term level.
In Austria, some 555 out of every 1000 inhabitants own a passenger car. This has long been among the highest figures in Europe (EU average: 510 passenger cars per 1000 inhabitants). Moreover, the vehicles themselves are among the newest in Europe with an average passenger car age of 9 years (EU average: 11 years). The fact that Austrian consumers are nevertheless spending less and less on purchasing a car in the context of their overall consumer spending—since the mid-1990s the share has fallen from 5 percent to 3 percent—is on the one hand the result of the limited growth in the costs of purchasing a car, but on the other hand can be attributed to the sharp increase in the number of lease cars and company cars. Regardless, the decline in the share of private consumer spending allocated to new car purchases is not an indicator of a reduction in motorised private transport.
Moreover, there are hardly any indicators that point to a decline in private passenger car use outside urban areas. Across Austria as a whole, the share of land transport journeys completed by passenger car has, in fact, fallen slightly in the last ten years, by about 1 percentage point to around 77 percent. However, this decline is due primarily to the exponential increase in the transportation capacity of other modes of transport, in particular the railways. In total, passenger car transportation capacity has increased by 14 percent since 2008.
The car is only set to increase in significance as we look to the future. According to the latest trend estimate from Umweltbundesamt (Environment Agency Austria), the number of passenger cars in Austria will increase on an almost continual basis from now until 2050, growing at an average of 0.8 percent per year and boosting the current figure of 5 million vehicles to some 6.5 million. Growth will be smaller than over the last two decades, which saw the number of passenger cars in Austria increase by an average of 1.3 percent per year, but car ownership will nonetheless continue to increase. The demand for cars will be driven primarily by the increase in the population, which is expected to reach 9.7 million by 2050. Assuming that current projections are correct, there would then be 660 passenger cars per 1000 inhabitants.
A further reason for the continued buoyant demand for vehicles is that a portion of those vehicles will be gradually converted from combustion engines to electric or hybrid drives. Environment Agency Austria estimates that the number of fully electric and plug-in hybrid passenger cars in Austria will increase from the current figure of 33,000 to 1.2 million by 2030 and around 4.4 million by 2050.
Cars are not becoming less popular in Austria, but the business opportunities in the domestic automotive economy are gradually declining
"Parallel to the increasing degree of motorization , however, the pressure on the automotive industry in Austria is also growing. In the short term, dealerships will face increasing sales pressure from manufacturers, who will need to sell significantly more diesel and electric vehicles in order to reduce overall CO2 emissions. In the long term, the sector will have to contend with the loss of certain aspects of its new car business as new mobility options become more prevalent, e.g. those offered under the umbrella of 'shared mobility'. Finally, there will be further consolidation of the existing dealer networks", believes UniCredit Bank Austria economist Günter Wolf.
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, tel. +43 (0) 50505 - 41954;