Germany’s auto sector decisive for manufacturing in 2019 – bank

LONDON (ICIS)–The performance of Germany’s large chemical-intensive automotive industry will be decisive for the country’s manufacturing in 2019, analysts at investment bank Deutsche Bank said on Tuesday.

“The automotive industry is a key sector in Germany. Its performance will decide if the German industrial sector successfully comes out of the recession of H2 [second half] 2018 during H1 2019,” they said.

German car production, in unit terms, was considerably down on year-on-year basis in the first quarter of 2019. March production (falling 14% year on year in unit terms) was “particularly disappointing”, the bank’s analysts said.

While the “supply shock” from the difficulties in implementing the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) was slowly abating, global auto demand has been slowing significantly.

Car demand in important markets is likely to decline slightly or stagnate at best in 2019 (US, eurozone, UK) or rise only moderately (China).

Also, the US was still threatening to increase tariffs on car imports from the EU.

However, as the US Administration repeatedly changed its stance on this issue, it was “highly difficult” to forecast future developments in this area, the analysts said.

Overall auto demand pick-up is unlikely before the second half of this year, they said.

Still, the statistics should benefit from the WLTP effect, which dragged down the basis for comparison in the second half of 2018. As a result, the year-on-year rate of change might become positive again in the second half of this year, the analysts said.

AUTO EXPORTS DOWN
In 2018, the value of German car exports decreased by 2.3%, the first decline since 2013.

One reason was the shift to the new WLTP emissions test, which meant that the production and export of a number of models were temporarily suspended because they had not yet been certified in line with the new standards, the analysts said.

The WLTP effect also affected factories in other countries, which is why exports of car parts were impacted as well.

Moreover, demand for cars declined in numerous markets towards the end of 2018.

German car exports to the UK (down 9.9%, the third decline in a row), Italy (-7.8%) and Belgium (-7.2%) suffered most in 2018. Exports to the US declined by 5% even though German carmakers slightly expanded their market share in the US, the analysts said.

However, much of the supply for US car demand is produced in local factories run by German carmakers.

A “surprisingly large increase” in the value of German car exports to China (up 14.6%) helped prevent a more pronounced decline in auto exports, the analysts said.

China reduced its tariffs on cars and car parts imported from the EU by mid-2018, which ” obviously helped to support car exports to the country”, they said.

Nevertheless, Chinese demand for cars weakened towards the end of the year, and this effect outweighed the impact of the tariff cuts, they said.

Despite the decline in car exports, Germany’s car sector still ran the largest trade surplus in 2018, with almost €113bn, down 5.5% from 2017.

Chemicals ran a surplus of €29.5bn in 2018, other vehicles (aircraft, ships, trains) of €26.9bn), and pharmaceuticals posted a surplus of €26.1bn, said the report.

The automotive industry is a major global consumer of petrochemical-based materials, which account for more than a third of the raw material costs of an average vehicle.

Additional reporting by Jonathan Lopez