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EUROPE: "The Central and Eastern European Automotive Market" report

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back to index backEUROtalk June,  2005

COMMENT: Auto 'Fascination' -- and hopes for the election

Exhibit builders will be working up a sweat to get automaker and supplier displays up for the IAA in Frankfurt, which starts Sept. 12. The IAA has added another press day to the event, presenting workers with a huge challenge.

German Chancellor Gerhard Schroeder is the main cause of the frenzied activity. He plans to make his way through the world's largest auto show one more time on behalf of his Social Democratic Party-Green Party cabinet. That's just days before the planned federal election and a meeting of the UN General Assembly in New York.

His trip may end up more like running the gauntlet than a triumphant march.

There have been strong reactions from Volkswagen group Chairman Bernd Pischetsrieder and Bernd Gottschalk, president of the German auto industry association (VDA), to the dust-up between German states and the federal government over particulate filters for diesels.

You could say they aren't very happy with the Red-Green political coalition.

As things now stand, the retrofitting of older diesel cars with particulate filters, subsidized with tax incentives, will begin in January 2006 at the earliest.

But it's highly questionable whether buyers of new diesel cars will be reimbursed for the cost of their filters, as promised by German Environment Minister Juergen Trittin.

The majority of German states ruled by the Christian Democratic Union are dead-set against the incentives, citing the program's costs. They would rather leave the question of particulate filters to the marketplace.

Even as auto executives quietly look forward to a new center-right coalition government with Angela Merkel as chancellor, a little wariness is in order. A change in government won't suddenly solve the problems of the auto sector or any other industry.

Fighting between the CDU and the Free Democratic Party and new initiatives proposed by the CDU's sister party, the Bavarian CSU, have upset consumers.

Managers have become irritated. The would-be coalition partners have fought over increases in the value-added tax and future business taxation, as well as CSU proposals to kill the commuter tax and homestead assistance.

Without a doubt, Germany still needs deeper reform to again become competitive internationally. But, in the end, it needs a secure future, not endless debates over taxes. Only then will consumers again summon up trust in the future and put an end to their panic-driven saving.

Like many market researchers, I see black ink ahead for the German auto market. But the federal government's direction in tax and subsidy policies won't become clear until October, at the earliest.

So we won't see a better consumer climate before the end of the year, if then.

Until then, there isn't much left for the auto industry to do, besides stabilize domestic demand to some extent with new incentives. Discounts are at historic highs.

According to the B&D Forecast research firm, consumers are getting price breaks of up to 21.8 percent on the new VW Golf. Even luxury dealers can't get around bonuses for brand-loyalty and early purchases, or those sports-oriented "active week" promotions.

The 61st IAA will once again be marketing itself with a "Fascination" theme. But no matter how hard the exhibitors try, the show won't be able to change much.

When there's no faith in the future, fascination soon fades.

Source: Franz W. Rother, Editor-in-Chief of Automobilwoche and the German Automotive Industry Newsletter - GAI

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