Trends in the markets
TRENDS IN THE MARKETS FOR PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES
In fiscal year 2020, the global market volume of passenger cars fell significantly below the prior-year level due to the Covid-19 pandemic, decreasing to 67.7 million vehicles (−15.2%). This marked a decline for the third year in a row. All regions were affected by this slump. The overall markets of Western Europe, South America and Africa recorded above-average losses, while the decline in Asia-Pacific and the Middle East was smaller in percentage terms.
Global demand for light commercial vehicles in the reporting period was down significantly on the previous year.
The sector-specific environment was influenced significantly by fiscal policy measures, which contributed considerably to the mixed trends in sales volumes in the markets in 2020. These measures included tax cuts or increases, incentive programs and sales incentives, as well as import duties.
In addition, non-tariff trade barriers to protect the respective domestic automotive industries made the movement of vehicles, parts and components more difficult.
In Western Europe, the number of new passenger car registrations in the reporting period was down substantially by as much as −24.5% on the prior-year figure, at 10.9 million vehicles. The negative impact from the spread of the SARS-CoV-2 virus was noticeable in all countries in the region as early as March. After the drastic decline at the beginning of the second quarter, recovery started in the months that followed, and by the end of the third quarter, figures even matched those of the prior year. The fourth quarter of 2020 witnessed a lateral movement in the market, keeping volumes noticeably below the previous year’s level. New registrations saw declines on a similar scale in all major individual markets and were in negative territory at year-end: France (−25.4%), Italy (−27.9%), the UK (−29.4%) and Spain (−32.1%).
The volume of new registrations of light commercial vehicles in Western Europe fell significantly below the prior-year figure, essentially due to the pandemic.
In the Central and Eastern Europe region, the market volume of passenger cars in fiscal year 2020 was down 15.9% on the prior-year level at 2.8 million vehicles. Following the slump in the second quarter and the recovery in the third quarter, the volume of new vehicle registrations flatlined in the fourth quarter and was moderately short of the previous year’s figure. The development of demand in the reporting period differed from market to market. In Central Europe, the number of new registrations dropped substantially by 23.3% to 1.1 million units. By contrast, the decline in sales of passenger cars in Eastern Europe (−10.1%) was weaker, due in particular to demand in Russia slowing less sharply (−8.8%).
Registration volumes for light commercial vehicles in Central and Eastern Europe were down significantly year-on-year. In Russia, the number of vehicles sold in the reporting period was also significantly lower than in the previous year.
At 0.6 million units, the volume of the passenger car market in Turkey in the reporting period was up by over 50% on the very low prior-year level. The increase in demand was boosted in particular by the strong growth in the third quarter of 2020. In South Africa, the pandemic meant that the number of new passenger car registrations was down sharply on the comparatively poor results of the previous year (−30.4%).
New passenger car registrations in Germany in fiscal year 2020 fell significantly short of the previous year’s high level, declining to 2.9 million units (−19.1%). Exacerbated by the Covid-19 pandemic and its fallout, demand for passenger cars fell to its lowest level since the German reunification despite a temporary reduction in value-added tax and higher purchase premiums for electric vehicles.
Owing to the mandated temporary shutdowns driven by the pandemic and weak demand in important foreign markets, domestic production and exports in the reporting period again fell short of the comparable prior-year figures: passenger car production decreased by −24.6% to 3.5 million vehicles, largely due to the −24.1% drop in passenger car exports to 2.6 million units.
Demand for light commercial vehicles in Germany in the reporting period was significantly lower than in 2019.
At 17.1 million vehicles, sales of passenger cars and light commercial vehicles (up to 6.35 tonnes) in North America in fiscal year 2020 were down significantly on the prior-year figure (−15.9%). The negative effects of the Covid-19 pandemic were also very noticeable in this region. After a drastic decline in demand at the beginning of the second quarter and a steady recovery in the months that followed, until the prior-year level was reached in September, the region witnessed volatile market performance in the last quarter of 2020. In December, a new recovery set in and the previous year’s figure was exceeded. The market volume in the USA remained markedly lower than the 2019 level, falling to 14.6 million units (−14.5%). The decline affected both the passenger car segment (−28.3%) and light commercial vehicles (−11.9%) such as SUVs and pickup models. In the Canadian automotive market, the Covid-19 pandemic significantly accelerated the downward trend that began in 2018 (−19.7%). In Mexico, sales of passenger cars and light commercial vehicles declined sharply (−28.0%), falling short of the prior-year figure for the fourth year in a row.
In the markets of the South America region, the volume of new registrations for passenger cars and light commercial vehicles in 2020 was much lower (−28.1%) at 3.1 million units following the drastic decline in the second quarter, a strong recovery in the third quarter and a lateral movement in the fourth quarter, though falling short of the levels recorded in the previous year. The South America region saw the most severe negative impact of the Covid-19 pandemic on the automotive markets in terms of percentage. In Brazil, the recovery in vehicle demand that began in 2017 was interrupted in the reporting year; at 2.0 million vehicles (−26.7%), the number of new registrations was sharply lower than in the prior-year period. Exports of vehicles manufactured in Brazil continued to decline, falling by −24.3% to 324 thousand. In the Argentinian market, too, the spread of the SARS-CoV-2 virus negatively impacted the demand for passenger cars and light commercial vehicles. In 2020, there was a sharp −26.6% fall in sales to 0.3 million units.
In the Asia-Pacific region, too, the reporting period was adversely impacted by the spread of the SARS-CoV-2 virus. After the very sharp decline in the first three months, the rapid rebound in the second quarter and a return to prior-year levels in the third quarter, demand in the last quarter of 2020 was moderately up on the previous year. The market volume of passenger cars was noticeably lower than the prior-year level at 30.9 million units (−9.6%). This was also partly due to developments in the Chinese passenger car market, where the volume of demand fell distinctly short of the previous year to 19.9 million units (−6.5%) as a result of the Covid-19 pandemic. Following the severe losses in the first three months of 2020, there were clear signs of a recovery in the overall market there as the year went on. In India, sales of passenger cars dwindled significantly year-on-year, falling by −17.3% to 2.3 million units. In the Japanese passenger car market, vehicle demand in the reporting period of 3.8 million units (−11.2%) was down markedly on the previous year due not only to the Covid-19 pandemic, but also to the increase in VAT as of October 1, 2019.
There was a significant year-on-year decline in demand for light commercial vehicles in the Asia-Pacific region. Registration volumes in China, the region’s dominant market and the largest market worldwide, fell distinctly year-on-year. The number of new vehicle registrations was significantly below the previous year’s level in Japan and drastically lower in India.
TRENDS IN THE MARKETS FOR COMMERCIAL VEHICLES
In the markets that are relevant for the Volkswagen Group, global demand for mid-sized and heavy trucks with a gross weight of more than six tonnes was down substantially year-on-year in fiscal year 2020 due to the spread of the SARS-CoV-2 virus: 460 thousand new vehicles were registered (−20.1%). Despite the ongoing uncertainty generated by the Covid-19 pandemic, a recovery could be seen in almost all of the markets that are relevant for the Volkswagen Group in the second half of 2020 compared with the first six months.
In the 27 EU states excluding Malta, but plus the United Kingdom, Norway and Switzerland (EU27+3), the number of new truck registrations was sharply down on the prior-year figure, dropping −27.4% to a total of 273 thousand vehicles. Registrations in Germany, the largest market in this region, fell substantially year-on-year. The previously anticipated downturn in the market for 2020 was amplified by the Covid-19 pandemic, especially in the second quarter of the year. The Russian market also deteriorated noticeably as a consequence of the Covid-19 pandemic and the related economic fallout. Turkey saw new registrations more than double compared to an admittedly very low prior-year figure. By contrast, the South African market declined considerably. In Brazil, the largest market in the South America region, demand for trucks was significantly below the level seen in the previous year as a result of the pandemic.
Demand for buses in the markets that are relevant for the Volkswagen Group was much lower than in the previous year as a consequence of the pandemic. All key markets within the EU27+3 contributed to this trend, with the market for coaches in particular virtually grinding to a halt. Demand was very much lower in Brazil and was less than half the prior-year level in Mexico.
TRENDS IN THE MARKETS FOR POWER ENGINEERING
The markets for power engineering are subject to differing regional and economic factors. Consequently, their business growth trends are mostly independent of each other.
In 2020, the marine market contracted to a significantly lower level than in the previous year. Demand was curbed predominantly by the global impact of the Covid-19 pandemic and uncertainty about future emissions regulations, and in merchant shipping by the negative impact of the ongoing trade disputes between the USA and China. Demand for cruise ships virtually ceased entirely due to the difficult liquidity situation, resulting from the Covid-19 pandemic. The passenger ferry segment – similarly affected by a loss of revenue resulting in part from project postponements – was also impacted by a decline in demand. The special market for government vessels, which is driven by state investment, continued on a stable trajectory. In the offshore sector, the existing overcapacity and low oil prices virtually stifled investment in offshore oil production. China, South Korea and Japan remained the dominant shipbuilding countries, accounting for a global market share of around 85% measured in terms of the number of ships. Since market volumes are still low, all sectors in the marine market were continuing to experience significant competition and strong pricing pressure as a result.
The market for power generation was unable to continue its growth trend in 2020 due to the Covid-19 pandemic and declined significantly overall. Most projects were postponed as a result of the spread of the SARS-CoV-2 virus and the pandemic-related uncertainty, with some being canceled altogether. Due to the collapse in oil prices and low equipment prices, there was a short-term rise in demand for stock engines run on HFO (heavy fuel oil) in developing countries, though the trend away from oil-fired power plants towards dual-fuel and gas-fired power plants continued. Demand for new energy solutions such as hydrogen, battery or solar technologies remained high, with a strong trend towards greater flexibility and decentralized availability. Due to the negative consequences of the SARS-CoV-2 virus, inventories in the reporting period increased, intensifying continued pressure from competition and pricing.
In 2020, the market for turbo machinery showed a significant deterioration year-on-year. The Covid-19 pandemic had a delayed negative impact on demand for turbo compressors in the raw materials, oil, gas and processing industry and varied in severity depending on market segment and region. Investments in oil production facilities remained at the prior-year level despite substantial, short-term price fluctuations. Demand for turbo compressors for industrial gases also remained slightly below the previous year’s level. By contrast, demand in the raw materials and processing industry dropped substantially. As a consequence of the Covid-19 pandemic, nearly all regions except for China recorded a severe downturn in demand compared with the previous year. The steam and gas turbine business continued to be dominated by overcapacity on the part of electricity producers. In addition, the pandemic-induced uncertainty and the continued pressure from competition and pricing compared with the prior-year period brought about a substantial dip in demand.
The after-sales business for diesel engines performed positively on the whole in 2020 compared with the previous year, benefiting from a continued increase in interest in long-term maintenance contracts and retrofitting solutions. The Covid-19 pandemic reduced demand for standard products, however, and decisions about capital-intensive modifications were delayed owing to cash-flow difficulties on the part of the customers. After undergoing a marked recovery in the previous year, the after-sales market for turbo machinery collapsed sharply in 2020 due to the Covid-19 pandemic. Here, too, capital-intensive modifications were postponed or canceled due to financial difficulties.
TRENDS IN THE MARKETS FOR FINANCIAL SERVICES
Demand for automotive financial services was at a high level in 2020, particularly in the first three months, due in part to the persistently low key interest rates in the main currency areas. Nevertheless, the Covid-19 pandemic put pressure on the demand for financial services in almost all regions during the reporting period. The effects of the Covid-19 pandemic were noticeable worldwide, especially in the second quarter of 2020. Markets for automotive financial services staged a partial recovery in the third and fourth quarters.
The European passenger car market was affected by the Covid-19 pandemic especially in the second quarter of 2020, which led to a significant decline in demand in the automotive business over the reporting period as a whole. Amid this challenging market environment, the share of lease and financing contracts to vehicle sales was expanded further in the European markets although the absolute number of contracts declined year-on-year. Demand increased for integrated mobility services such as parking, refueling and charging. The business with after-sales products such as servicing, maintenance and spare parts agreements, as well as automotive-related insurance was maintained at the prior-year level in the current market environment.
Germany saw a year-on-year drop in the number of loan-financed and leased new vehicles in 2020 due to the challenges of the Covid-19 pandemic. In the leasing business with individual customers, the shift from financing to lease contracts that began in 2019 continued.
In South Africa, demand for financing and insurance products stabilized in the second half of 2020 after declining in the first half, but was down year-on-year in the reporting period. Lower interest rates led to an increase in cash purchases. Non-vehicle loans were also used to buy vehicles.
A drop in demand for new vehicles has been seen across the entire North American region as a consequence of the Covid-19 pandemic. In the United States, however, demand for financial services rose slightly and increased as a proportion of vehicle sales. A shift from lease to financing contracts was observed here along with an increase in sales of used vehicles. The proportion of lease and financing contracts in Canada in 2020 was also up on the prior-year level. Absolute numbers of contracts decreased, however, due to the decline in deliveries. A downward trend was observed in Mexico, both for the absolute number of financing contracts and for the percentage share, which was attributable in part to the currently limited fleet business.
In South America, demand for vehicles and automotive financial services in the reporting year was down on the previous year. It recovered at the end of 2020 after dipping in the second and third quarters as a consequence of the pandemic. In Brazil, the trend toward fleet business and long-term leases continued to strengthen, with the number of long-term lease contracts exceeding the prior-year level. In a difficult macroeconomic environment, customers in Argentina purchased their vehicles mostly in cash; demand for automotive financial services decreased year-on-year.
China’s passenger car market started to recover from the Covid-19 pandemic from the second quarter of 2020 onwards. The easing of restrictions continuously led to increasing numbers of new contracts being signed for automotive-related financial services, which were up slightly overall on the prior-year level. In Japan, the effects of the Covid-19 pandemic were perceptible in the form of weaker new car sales, with a related fall in demand for financing and leasing products. In India, demand for financial services was below the previous year but rose again in the course of the year as lending rates in the new and used vehicle segments stabilized.
The Covid-19 pandemic also led to substantial declines in demand for new and used vehicles in the commercial vehicles business area in 2020. As a result, there was an equal fall in the number of lease and financing contracts in Europe; however, there was a rise in the penetration rate of these financial products in Brazil.