Germany's car industry rolls boldly into new year

The new boom in German vehicle output is set to continue its strong run this year.

The BMW assembly plant in Leipzig, Germany. Luxury vehicle sales look set to keep last year’s boom rolling.

A brief decline in German vehicle output in 2009, caused by the global economic downturn, was decisively reversed last year, and the new boom is set to run strongly this year

The holiday season has not been a particularly restful time for German car workers, but they are unlikely to be complaining. Global demand for vehicles made in Germany is so strong that many factories have shortened their usual two-to-three week seasonal breaks to work off the mounting backlog of orders.

BMW, Daimler and Opel have kept the production lines running at a number of plants in a clear sign that the boom in sales last year is set to continue this year. It is a far cry from 2009, when the worldwide economic downturn forced carmakers to put tens of thousands of workers on short time.

German passenger car exports jumped by 23 per cent to 4.2 million units last year and are set to grow a further 5 per cent this year to an all-time high of 4.4 million, beating the previous high of 4.3 million in 2007, the German Association of the Automotive Industry (VDA) predicted last month.

The boom is being driven by surging demand for luxury cars in China, where total passenger car sales jumped by 37 per cent to almost 10.2 million vehicles in the first 11 months of last year, making it the world's fastest growing market, according to the VDA.

The chief executive of Daimler, Dieter Zetsche, has forecast that Chinese consumers will become the biggest buyers of Mercedes cars in the next three to five years and that the company will sell 300,000 cars in China in 2015. Daimler, in which Aabar Investments is the largest shareholder with a 9.1 per cent stake, said last month that it expected to have produced 1.2 million passenger cars last year, beating its previous record of 1.194 million in 2008.

Audi, the luxury unit of VW, expects to sell 1 million vehicles in China in the next three years. China, the company says, is about to become its largest single foreign market.

The weakening of the euro after the European debt crisis last year has also helped boost German car sales outside the single-currency area because it has made the vehicles cheaper in foreign markets. But the strength of Germany's luxury car brands in emerging markets is likely to have been the key factor behind the sales surge.

In addition, the country's system of state-subsidised short-time working schemes helped companies to fire up production rapidly this year. While industrial firms in other countries were forced into mass redundancies during the 2009 downturn, German firms were able to retain skilled employees and were spared the need for costly and lengthy rehiring when demand suddenly revived last year.

Their global presence was a further factor enabling German firms to boost their output quickly. The top manufacturers produced a total of 5.7 million passenger cars in plants outside Germany last year, an increase of 17 per cent from 2009.

The vehicle boom last year was to be expected given the surprisingly fast recovery in world markets from an annus horribilis in 2009. But the almost universal predictions that growth will continue this year, albeit at a slower pace, is encouraging news for investors in German vehicle stocks.

The US car market is recovering steadily and demand for luxury cars - Germany's forte - will reach just under 4 million per year there by 2015, according to a recent forecast by the University of Duisburg-Essen.

The German market share has been growing in the US, where it currently stands at 11.8 per cent for passenger cars, as well as in central and eastern Europe and in India.

Exports won't be the only driving force this year. The German domestic car market is expected to start growing again this year after a decline of as much as 25 per cent last year caused by the expiry of a government car-purchasing subsidy that had led to a surge in demand for mainly small cars in 2009. The VDA expects car sales in Germany to rise to 3.1 million this year, from 2.92 million last year.

The manufacturers would be unwise to rest on their laurels though.