UniCredit Bank Austria Industry Report on the automotive economy
No end in sight to crisis in automotive trade until 2023
- Austria's automotive trade records 6 percent nominal decline in sales from January to April 2022
- Sector now worth EUR 33.7 billion thanks to nominal sales growth of 11.7 percent in 2021, but has still not returned to pre-crisis level
- Potential economic recovery in automotive trade now not predicted until 2023
- Importance of cars diminishing, but slowly; automotive retail to come under more pressure as consumers switch to electric vehicles
The automotive trade in Austria is currently suffering its worst crisis in decades. Demand for vehicles peaked in 2017 and has been on the decline ever since. Registrations of new passenger cars fell by around a fifth in the first half of 2022, with fewer electric cars being registered for the first time too. However, the nominal drop in sales in the automotive trade was moderated by higher vehicle prices. "Given the declining sales figures, it is notable that the cost of purchasing a passenger car has been rising for more than two years; this indicates higher list prices and a scarcity of discounts for new cars", says UniCredit Bank Austria Economist Günter Wolf. The pessimistic business expectations of car dealers in June 2022 are a sign of further sales losses, at least in the third quarter. Sales of new cars in Austria are not set to rise again until 2023 — and even then, progress will be slow and dependent on the extremely volatile economic situation stabilising.
Crisis in automotive trade continues in 2022, recovery not expected until 2023
Since 2020, the automotive trade has been going through its worst crisis in decades. Sales of new passenger cars in Austria have been on the decline since new car registrations peaked at 353,000 in 2017. In the first half of 2022, the number of new cars registered was 19.2 percent lower than in the previous year. If there is no sustained reversal of this trend in the second half of the year, fewer than 200,000 passenger cars will be registered in 2022 — a figure not seen since 1981.
The decline in passenger car sales is reflected in dealership sales figures: The sector experienced a decline in sales in 2020, partly due to higher sales of second-hand cars, which it then struggled to make up for in 2021, with a nominal increase of just 11.7 percent. At EUR 33.7 billion, however, the sales volume remained below the pre-crisis level. By April 2022, nominal sales in the automotive trade had fallen by 6 percent. "Car dealers' business expectations were still very pessimistic in June 2022, signalling a further fall in sales in the automotive trade, at least for the third quarter", says Wolf, adding: "Overall in June, 55 percent more car dealers expected a decline rather than a renewed increase in their business activities over the next few months. As a result, Austria's car dealers were just as pessimistic as they were in mid-2020."
The pre-April 2022 decline in sales in the automotive trade was partially absorbed by a 5.7 percent nominal sales increase in vehicle repair workshops. In the workshop sector, overall business expectations also remained somewhat optimistic in June and further growth can be expected. For several years now, car dealers have consistently been able to accommodate poor growth in trade sales with increasing revenue from their workshops. However, since the sales volume for car workshops is significantly lower at EUR 5.4 billion, the decline in the retail sector can only be offset to a limited extent.
Cost of purchasing a car rising more sharply again for first time in years
The automotive trade is being hit not only by the weak demand for vehicles, but also by limited availability of new cars due to vehicle manufacturers experiencing supply problems. The shortage of new cars has in turn boosted demand for used vehicles, causing supply bottlenecks in the segment as well. As a result, car prices rose by an average of 2.9 percent compared with the cost of purchasing a new or used passenger car in 2020 and 2021, and by 12.3 percent in the first half of 2022.
This price increase is notable given the sharp decline in sales figures; it reflects the higher list prices for new cars and the fact that very few discounts have been offered. Before 2020, the cost of purchasing a new or used car had been stagnating in Austria for more than a decade, despite the higher demand for more powerful and often more expensive vehicles. The relatively weak development in the cost of purchasing a passenger car was due to a number of factors, not least the strong discount culture in the new car trade.
That vehicle prices are now rising more sharply again is also explained by the fact that since mid-2021, the demand on the second-hand car market is not being met by sufficient supply. In the first half of 2022, new cars were 7 percent more expensive on average, while second-hand cars were 18 percent more expensive on average. In any case, higher vehicle prices moderated the nominal drop in sales in the car trade, which until April 2022 had recorded a price-adjusted decline of 12.7 percent and a nominal decline of 6 percent.
Sustained easing of the Austrian new and used car market can be expected in 2023 at the very earliest, provided that the extremely volatile economic situation stabilises and that vehicle manufacturers do not experience any further supply issues.
Importance of cars diminishing, but slowly
Motorised private transport will be less important in the future, with the volume percentage occupied by passenger cars (i.e. the number of passengers carried in a car each year multiplied by the distance travelled) still increasing, but more slowly than that of other means of transport. In the current EU reference scenario, from 2020 to 2050 an increase of 1.4 percent per year in total passenger traffic (without flights) is forecast for Austria, with private vehicles accounting for 1.1 percent of this amount. This means that despite the changes in people's mobility patterns, the number of vehicles will continue to grow.
In future, however, demand for cars will primarily be influenced by consumers switching to electric or hybrid vehicles. In 2021, fully electric or plug-in hybrid models already accounted for 20 percent of the new vehicles registered in Austria and 2.1 percent of the total number of passenger cars in the country. New registrations of electric cars and plug-in hybrids fell for the first time in the first half of 2022, by a total of 9.6 percent. However, the quota of electric and hybrid models has continued to rise, to about 2.4 percent, as new registrations of passenger cars with an internal combustion engine have fallen considerably more sharply, by 24 percent.
Automotive industry losing business opportunities
"There's no doubt that, despite the EV charging network being fragmented and the cost-benefit ratio of electric cars still being far from convincing, especially without grants and incentives, e-mobility is rapidly increasing in importance — or at least it will need to if climate targets are to be achieved", says Wolf. However, the high purchase prices and almost non-existent second-hand car market are still hindering access to e-mobility, especially for low-income groups, and consequently preventing the widespread adoption of e-vehicles. Overcoming these barriers will require new financing methods and ownership models, which are increasingly being offered in the form of car subscriptions, pay-as-you-go plans and shared mobility schemes.
The changes outlined here will put the car trade under even greater pressure. The importance of car dealerships had been declining before the current crisis and the pandemic has accelerated this — especially since not only used cars but new ones too are increasingly being bought online. In the future, new cars will increasingly be purchased directly from the manufacturer or via brand-independent price comparison sites, thereby further limiting the business opportunities of traditional dealer networks.
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;