German auto group sees issues with Brexit, trade deals

LONDON (ICIS)–The global car market will continue to grow in 2017 – but risks are rising and “the growth curve will become flatter”, German car manufacturers’ trade group Verband der Automobilindustrie (VDA) said in an outlook on Friday.

VDA sees risks to free trade and uncertainties from the UK’s June referendum vote to leave the EU (“Brexit”).

The prospects for the big free trade agreements “are causing us worry”, said VDA president Matthias Wissmann with reference to the stalled Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU.

US President-elect Donald Trump campaigned against past trade agreements, dimming TTIP’s chances. But TTIP is also controversial in the EU and commentators have said that the deal was dead in the water even before Trump’s victory on 8 November.

However, Wissmann said that he hoped that the US would continue to appreciate the advantages of good trade relations with Europe.

Currently, a car exported from the US to Europe is subject to a 10% EU import duty – which with TTIP may be abolished, he said.

As for Brexit impacts, VDA assumes that UK new-car registration will fall 8% in 2017, to about 2.4m.

While it was difficult to make precise forecasts, a “hard Brexit” would have negative medium and long-term negative on the west European auto sector, Wissmann added. A hard Brexit would involve the UK leaving the tariff-free European single market.

Wissmann, a former federal transport minister and powerful lobbyist, said previously that in the wake of Brexit it would be VDA’s priority to keep the EU’s 27 remaining members together – even if that implies less business for German car makers in the UK.

The US and the UK are both important export markets for German car majors BMW, Mercedes and Volkswagen Group, which includes Audi and Porsche.

Overall, VDA is forecasting a 2% growth in global car volumes, to 83.6m units.

In western Europe, 2017 volume trends would be stable, with about 13.9m units, VDA said.

In the US, the market would move “sideways”, with 2017 light vehicle volumes expected at 17.1m, the group said.

However, China’s car volumes would continue to grow, rising 5% to 24.2m units next year. Meanwhile, in Russia and Brazil, “the long downward journey” should come to an end in 2017, according to VDA.

As for Germany, VDA is forecasting a 5% year on year increase, to 3.4m, in 2016 full-year new-car registrations, and it expects “a similarly high market volume” in 2017, it said.

The German car market was supported by “sustained good trends in the overall economy”, as reflected in high employment and consumer incomes, as well as by favourable financing condition, the group said.

The automotive industry is a major global consumer of petrochemicals which contributes more than a third of the raw material costs of an average vehicle. ICIS tracks the movement of petrochemical raw material costs in auto production both globally and regionally with the weighted ICIS Basket of Automotive Petrochemicals (IBAP).

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