Scrappage

Global Passenger Vehicle Sales Increased by 3.8%; First Seven Months of this Year Were 10.5% Above Previous Year

Key findings include:

• July sales increased approximately 10.5% year-over-year due to several incentive programs and more favorable economic conditions
• New registrations in Eastern Europe increased in July (+26%) and were led by the scrappage premium in Russia
• For the remainder of the year, sales growth rates will turn negative due to the expiration of several scrappage premiums in Western Europe

Forecast updated on August 11, 2010 with data from July 2010 YTD.

Click here to visit the forecasting page and download the free Global Passenger Vehicle Market Monthly Forecast Report.

Posted by Ulrich Winzen, Chief Analyst, Polk, Essen, Germany (08.12.2010)

The July YTD data shows the passenger vehicle sales forecasting through 2011 for Spain.
 

Key Findings:

• In July 2010 the Spanish car market reached its lowest level for a month of July since 1995
• The end of the scrappage premium and the increase of the VAT from 16% to 18% had a strong and negative influence on registrations
• The strong positive effects in the first half of 2010 pushed the market to 1.01 million new registrations this year
• The forecasted decline of the Spanish market in 2011 (which will reach a maximum of 1 million new registrations) is due to the weak economic framework and missing positive special effects

Click here for the latest analysis and predictions for select markets around the world. Polk's Global Automotive Forecasting Dashboards are updated regularly. Be sure to check back often to ensure you have the most updated information. You can also click here to subscribe to receive our Knowledge Center and Forecasting updates via email.

Posted by Ulrich Winzen, Chief Analyst, Polk, Essen, Germany (08.05.2010)

For the first five months of this year, the production of cars in Germany rose by a remarkable 26%. It was just a few months ago that the German OEMs reported a 10% decline in their production volumes for 2009 due to strong export reductions (-17%). Only the European scrappage schemes prevented the automakers from an even sharper downturn. These trends intrigued me, so I took a closer look at the significant comeback the German auto industry is making so far in 2010.

Given the German OEMs were impacted by the worldwide economic crisis, especially between the fourth quarter of 2008 and the second quarter of 2009, it is difficult to make a direct comparison with past car production trends. Nevertheless, the output of the first five months of 2010 is only 6% below the record car production level seen in 2007. As for the exports, the May YTD figure shows a 50% increase over last year. While this is a large increase, exports were extremely low during the first few months in 2009.

Exports are currently the only component to give impetus to the production in Germany. The domestic car demand is expected to fall 25% this year due to the expiration of government incentives. For 2010, we expect that 77% of the cars produced in Germany will be exported, as opposed to a 69% export rate in 2009. Incoming orders from foreign markets make the industry look quite optimistic in the medium term. Polk predicts that exports will reach 4.25 million cars in 2010, the second best year ever. Production is currently expected to be 5.5 million units, which would make 2010 the third best year in history — not bad for the first year after the most severe automotive industry challenges ever faced.

Click here to see the latest forecast for German Passenger Vehicle Sales.

Posted by Thomas Mawick, Manager, Automotive Studies, Polk, Essen, Germany (07.09.10)

The April YTD data shows that increased demand in Asia and the NAFTA region helped push global automotive sales.

• Automotive sales increased approximately 13% year-over-year in April due to several incentives and an improving economy
• All regions had a significant (double digits) sales increase for the first four months except for Central and Eastern Europe
• For the rest of the year, the growth rates are forecasted to decline based on the expiration of several scrappage programs in Western Europe and lower overall demand

Find out more by downloading the free Global Passenger Vehicle Market Monthly Forecast Report.

Click here for the latest analysis and predictions for select markets around the world. Polk's Global Automotive Forecasting Dashboards are updated regularly. Be sure to check back often to ensure you have the most updated information. You can also click here to subscribe to receive our Knowledge Center and Forecasting updates.

Posted by Ulrich Winzen, Chief Analyst, Polk, Essen, Germany (05.27.2010)

I think there's some good news based on our annual analysis of the U.S. vehicle population. "For whom and why?", you ask? Read on.

1. The U.S. light vehicle forecast is expected to be 11.5 million units for 2010. That's up from 2009's 10.4 million... we'll take any gains possible. Good news for dealers and automakers.
2. The average age of light vehicles on the road has been creeping up as well. It's just north of 10 years as of September 2009. A decade ago it was 8.8 years. This means vehicle repairs needs should continue to increase for service and repair facilities. Go get 'em aftersales folks!
3. The length of time you and I are typically holding our vehicle is also increasing. See my earlier blog post. Again, good news for both the dealer network and independent service and repair facilities.
4. Light vehicles are scrapping out at a rate of 6.1%. The trick here for marketers is to find out which segment of us vehicle owners are actually eliminating vehicles at a higher rate than other consumer groups. Over the last 60 years, this measure of possible vehicle demand has actually averaged around 6.3% for all cars and trucks (counting trucks in the commercial vehicle market - see the below graph). While the scrappage rate may be a bit higher this year, it's NOT directly implying new vehicle sales will be shooting upward to make up for the "scrapped" or lost units (new sales are driven by several factors, not just a scrappage rate). There are a lot of older vehicles that are natually "dying" now, yet you can't assume this will be compensated by a 1-for-1 replacement. Case in point: if people are holding onto their vehicles for longer periods (see above), it implies you don't get more sales with increasing scrappage rates in all cases.

My question to you: how reliable have you found these factors to be in your business and how do you use such trends?

Posted by Lonnie Miller, Vice President, Marketing & Industry Analysis, Polk (03.30.10)

There has been much recent news and comment with respect to Europe and the sales environment looking ahead. We know from our own experience that the introduction of scrappage incentives can have positive influence whilst in effect, but can also have negative impacts on future vehicle sales. Further, our own analysis has identified unforeseen side effects relative to these programmes with reductions in loyalty rates. Once these programmes ended the loyalty rates returned to normal – demonstrating just how sensitive repeat buyers can be to these types of programmes.

With scrappage programmes coming to an end in Europe, and market-specific influences such as the VAT increase in the UK – it begs the question as to what we can expect in the years ahead.

We will be reviewing our most recent global automotive forecasts, with a detailed view on European Car Demand at a Polk EuroCar Seminar in the UK upcoming on 20 January 2010. For those attending, we look forward to reviewing these forecasts with you, and for those who cannot attend – we hope you will follow Polk’s Forecasting Dashboards or engage with us directly.

The current and projected sales trends have caused many vehicle manufacturers and dealers to increase their focus and attention on customer retention and related programmes. Customer loyalty and optimal aftersales programmes drive positive customer behaviours, and ultimately dealer and manufacturer profitability – key in the difficult sales environment. We will explore some of the best practices we have seen at the seminar, including such areas as predictive targeting and multi-channel integrated communications. Aftersales and service matter, and there are opportunities to succeed and drive results.

And whilst there is no doubting the impact of customer loyalty and retention, no brand can excel in these times without converting the highest percentage of active prospects. There are proven approaches to prioritising focus that generate demonstrable results in increasing conversion rates – and particularly with respect to internet leads. We will discuss our experience in this area at the seminar, and the broader effects the internet and social media are having on the industry.

These are indeed interesting times, but there remain opportunities for the taking.

Posted by Norm Marks, Vice President & Managing Director, Northern Europe, Polk (01.13.2010)

This has been a difficult year with many automotive industry challenges; consequently, marketing budgets have been cut significantly. I attended EquipAuto 2009 for the fifth time as a visitor, and the second time as an exhibitor. I must say that the show left me with a funny feeling.

Despite rumors of cancellation, the exhibition took place from the 13th to the 18th of October in the North of Paris. The limited number of exhibitors meant that the surface was reduced from six to two halls. I was even more surprised to discover that these two halls were not full. Last minute budget shortages left so many holes, it was like navigating your way through a piece of Swiss cheese. It really was unusual to have such a low turnout of exhibitors, yet the increased visibility worked to our advantage. The attendants could spend time on stands, discussing the technologies and the innovations.

The event included the traditional tooling, servicing and hardware exhibitors showing usual products supported by new sales concepts -- those mainly acting in the independent aftermarket. I've noticed the growing importance of computers in the traditional parts & service industry. The image of the greasy mechanic dressed in blue is quickly being replaced by a clean consultant, checking databases and launching programs to give you the expected answers and service for your car.

I noticed something else different – it seems the first steps are being taken to follow the path required by the many new regulations for environmentally-friendly cars. After years of heavy cars and big engines, we are living through a major change to more efficient, lighter, and safer cars. And to support that, parts and service suppliers brought new things to the table -- new technologies that go along with drastic reductions of carbon emissions. I’m talking about the growing number of dry cleaning solutions, the LED suppliers, the catalytic converters fabricants, etc. Innovations are following the evolution of cars. The more than necessary reaction and adaptation to change within the industry is finally here. It is costly, but the adaptation to the upcoming cars is necessary, especially since the scrappage premiums and the CO2 regulations in Europe are accelerating the phenomenon. Although, the crisis been difficult on the industry, the creativity and innovation remain!

Posted by Bertrand Rakoto, Analyst for Marketing and Consulting, Polk (11.11.2009)

Everyone is talking about the market turbulences caused by the governmental scrappage schemes in different European countries. Much has been made of the fact that many consumers have "pre-bought" in 2009, which will have a negative effect on the sales trend in 2010. But, nobody is really talking about how the scrappage schemes have changed the market structure. I decided to look at the effect of the scrappage schemes on diesel-powered cars to see what the effect on that important vehicle segment might have been.

I found that the scrappage schemes had a significant and negative effect on diesel car sales. During 2008, the long-term upward trend of increased European market share for diesel vehicles came to an end, peaking at about 51% of total new car registrations. In contrast, during the first seven months of 2009, the share of diesel cars in the European market share fell to 45%.

Diesel Share Europe

Why did the scrappage incentives cause diesel sales to fall? People bought a heavier level of mini and small cars during the scrappage incentive period, which took away from diesel sales. As consumers who purchase mini and small vehicles typically use them for urban driving, they don't find that spending the extra money for diesel cars is justified by the savings in fuel costs. Also, since there are fewer diesel models in small or lower vehicle segments, consumers bought more non-diesel models as a result of the incentive programs.

Here is an example of the shift from diesel sales: In the German market for the first seven months, the share of diesel vehicles fell by 14 percentage points to 30% this year. I have not seen this low level of diesel penetration since about 10 years ago.

Diesel Share Germany

While we have to assume a total sales volume reduction in markets that are currently heavily supported by scrappage programs when the programs end, we also expect a normalisation in the market structures. We would expect to see sales in the small vehicle segment go down next year, which will automatically cause the market share of diesel vehicles to increase because of the higher diesel penetration in larger vehicle segments.

The scrappage schemes have given auto analysts a hard time – it is essential for them to get quick and detailed data in order to analyze the sales trends and distinguish short-term market reactions from real industry trends. From my perspective, the reduction in diesel sales is one example of a short-term sales trend.

Posted by Thomas Mawick, Manager, Automotive Studies, Polk, Essen, Germany (09.02.2009)

• Consumer polling conducted by Polk before the program began was an early indication of its likely success, with almost two-thirds (64%) of respondents expressing interest in the program. In addition to the savings, improved fuel economy and a desire to help the environment were reasons consumers gave for interest in the program.
• The huge success of similar "scrappage" programs in Europe that the U.S. Cash for Clunkers was modeled after was another early indication this program was going to be big.
• There was so much interest in the program that the government’s CARS website for dealers to register for certification in the program crashed due to the overwhelming volume when automobile dealers across the country began enrolling on June 24th.
• High levels of local, regional and national automotive advertising signaled the industry was ramping up and getting ready for the program well in advance.

I was on a web panel last week that addressed how dealers can market to customers and leverage the U.S. "Cash for Clunker" program starting later this month. It's amazing how many questions surfaced about the implementation of this program and the questions that remain in the minds of dealers about what to expect once customers start calling them. The folks at NHTSA (National Highway Traffic Safety Administration) have no small chore to get everyone running a dealership up to speed on this program.

From an automotive marketing view, here are some things dealers can do to prepare and capitalize on the showroom traffic the Cash for Clunkers program will hopefully create:

1. Check in on your past customer base. The $3,500 - $4,500 incentives tied to the Cash for Clunkers program give dealers a perfect reason to reconnect with their past clientele in hopes of building further customer loyalty.
2. Look at the vehicle mix in your local market. Find out what the dominant vehicle age and vehicle segments (e.g., minivan, SUV, small car) are that define your trade area.  And be highly conscious of the domestic and import brand mix in your area. A lot of the qualifying vehicles will be domestic nameplates. 
3. Buy outside marketing lists. At my company, we provide analytically-based targeting tools that help marketers (dealers, OEMs, ad agencies) spend less money on targeting campaigns by using information that's refined to hit the audience they wish to reach. This week, we just launched a targeting model to help find households likely to own a "clunker." 
4. Don't use the word "scrappage" when describing this program to the public in your advertising. The phrase "cash for clunkers" is more common and will result in better web hits from prospective customers. "Scrappage" has been used widely in Europe to describe similar programs, but it doesn't seem to be descriptive enough for the U.S.
5. Make sure you have inventory in stock to enable someone to buy the type of car that fits this Cash for Clunker program. And if you're a dealer who doesn't want to order new units right now (due to inventory and carrying cost concerns), start looking for relevant dealer trades with other stores.
6. Dealers should talk to the OEM marketing reps. I'm aware of several national programs that the automakers are working on to help drive traffic to their dealer network. Find out what is coming, if anything. 
   
7. Don't forget to integrate deals from other incentives/promotions with the Cash for Clunker incentive. 
8. Lastly, use what's fundamentally worked in the past to draw in people who are likely to buy a new vehicle. Remember, this is still about selling a new car or truck, so some of the proven marketing messages and techniques should still be considered when getting the attention of the "clunker" audience. 

I can almost see the headlines on CNBC or Fox Business noting that occult store stock has surged, due to the preponderant purchase of soothsayer assistance items. Magic 8 balls will reach the spire of their economic demand since being paired with lava lamps, and businesses will start hiring mystics to work with their economists and business analysts. Maybe that is more than a little far-fetched, but to assure ourselves we never reach the point of crystal ball and lucky rabbit's foot dependence, the commercial vehicle industry must go through some realistic and sound self-assessment. More than ever, my customers are looking toward forecasting tools in the hopes of gleaning enough  knowledge about their market and the business climate to make informed decisions that will mitigate the effects of the slumping economy on their businesses.

While the industry is extraordinarily complex and there are no one-size-fits-all solutions, there are some major points of emphasis that may act as a general indicator, applicable to most businesses looking for some direction. The three following issues can greatly impact the decision-making process of just about any business in the commercial vehicle market.

First, diesel engine emissions standards are becoming increasingly tough. This is especially true in the heavy duty segment, and it has already shown up in new vehicle registration volumes over the past 2-1/2 years. Meanwhile, at the other end of the spectrum, class 3-5 vehicles have increased their market share 3% - to 41.6% of the total truck market - in the same time frame. Look for this industry trend to continue as the projected Compound Annual Growth Rate (CAGR) of Class 8 vehicles looks very weak until 2013. 2009 new vehicle registration volumes will fall again, to 380,600 vehicles. This number is less than half of the new vehicle registrations of 2006. VIO is still expected to climb, which suggests there will also be much less scrappage than in years past. On the positive side, the combination of those two metrics should mean an increase in used vehicle volumes and parts and service activity. Third, we can safely say that the industry will start to recover by Q1 2010, with the overall business climate of the country and the world. Commercial vehicle registrations will rebound to above 2008 levels as early as next year. Survival is the key to reaping the benefits of the upcoming growth markets, but we know bear-like hibernation is not an option until then. 

How do you plan to maximize profit before the impending demand spurs need?
Polk Solutions Consultant Dave Goebel speaks about these issues in much greater depth in this Polk View, "The Future of the Commercial Vehicle Market." 

In a stormy business climate, navigating the troubled waters effectively can mean the difference between capsizing or making it safely back to harbor. Question is, are you using a compass or a talisman to get there?

Posted by Therran Oliphant, Account Representative, Commercial Vehicle Group, Polk (07.06.2009)

This week, President Obama signed the “cash for clunkers” bill.  So let’s talk about the impact this will have on auto sales this year. In case the basics of this bill are foreign to you, it's essentially a cash incentive. The goal is to motivate us to turn in an older vehicle (that has to then be destroyed) and purchase a new one. The government will provide a voucher worth up to $4,500 to help pay for the new set of wheels. And, you have to buy a new vehicle that’s more fuel efficient than the older one you’re turning in. 

How will this affect automotive sales trends?

Obviously, there have been a lot of estimates on how many more auto sales this type of government program will create.  To those hoping the automotive industry challenges facing so many can be put to rest, this legislation is one source of optimism. But, it can only go so far.

One thing to realize is that the funding for this bill was decreased to $1 billion dollars, down from a reported $4 billion in its earlier version.  Given the current details of the cash for clunkers bill and the dynamics of the car market right now, we know the bill can only fund roughly 200,000 additional sales.  While this newly-signed bill won’t make or break the year for any auto manufacturer, it’s a good sign of commitment to help stimulate sales and hopefully add to rebuilding consumer confidence. 

While sales of new cars or trucks are down across the globe, many countries in Western Europe implemented similar legislation earlier this year (aka "scrappage programs").  Between January and May 2009, roughly 500,000 additional passenger vehicles sold due to cash for clunkers programs in various European countries (here's a recent Polk press release on this).  By the time 2009 closes, it’s expected that more than 1.3 million additional sales in that part of the globe will occur. 

This is only one piece of a larger economic reform plan to get the U.S. economy back on its feet.  Selling cars is one part of that formula.  Will it be the single biggest deal benefitting our industry right now? No. But at a local level, it’ll drive traffic into the dealerships...and maybe give a few dealers some much needed cash flow now versus later. Those looking to get a deal on a new car or truck would be smart to see if they qualify...and take the money while it's still available.