Yesterday, Germany went ga-ga (in a subdued German way) about a 40 percent bounce in new car sales in March. Today, the cold shower: German exports dropped 26 percent year on year in March, and plunged by nearly a third in the first quarter, Reuters writes. “Three out of four cars assembled in Germany are exported,” VDA President Matthias Wissmann reminds us. So despite the huge jump in domestic sales, overall car production fell by a fifth a March and was down by a third in the first three months of the year.
As far as the domestic market goes, statistics compiled by the KBA motor vehicles agency show sales of the micro cars more than doubled in March, while deliveries of small cars advanced 75 percent and compact car turnover gained just over 8 percent.
Sales of the top-end vehicles fell by a quarter leaving premium brands like Mercedes-Benz and BMW out in the cold despite a market boom. Mercedes brand sales were down 7.6 percent, while BMW sales slipped 1.1 percent even including its Mini brand. Premium German carmakers are having a hard time handling the collapse of demand in major foreign markets.
If you want the unadulterated official version (in German) click here and you shall receive.
Maybe BMW and MB should stop overpricing their crap now?
In economics they call it the law of unintended consequences. When the government messes with the markets they cause all sorts of problems.
bluecon, I think the “all sorts of problems” have yet to come. With all those micro car sales recently, I am not optimistic about new cars sales in Germany for the next few years. They just felt a pinch and over reacted; they will face real starvation.
What unintendend consequences? If the small cars wouldn’t have been propped up by the Abwrackprämie, we’d be looking at double digit losses in the last two months. What the Abwrackprämie did was lure people into buying a new car who usually never do: Owners of cars 9 years and older. In Germany, those usually buy used again. So by the end of the year, out of 25 million cars older than 9 years, 600K or maybe 1m will be taken off the road and exchanged for more fuel efficient and cleaner cars. What’s wrong with that?
I’m with wsn.
I don’t so much have a problem with the base prices of their cars, but the way that they completely rape people with option packages is just wrong.
If it’s a luxury car, shouldn’t the high price include the bells & whistles?
The unintended consequence will show up in a month or two when the distortion effect of this subsidy kicks in and the sales of lower-margin-economy cars crash. I predict a equal and opposite reaction soon.
It is kinda like GM’s wonderful 0 percent financing. Once they did that they were stuck with 0 percent financing. They have pulled sales forward and when the program ends there will be a big slump in sales.
If you look at the housing bubble it was a result of government meddling. Artificially low interest rates and easy credit pushed into the market by the government. If you look at economics the bubbles always burst. This scheme is a small bubble that will burst.
I saw Chancellor Merkel saying that we were living beyond our means and that is what caused this economic problem. She is right.
If it’s a luxury car, shouldn’t the high price include the bells & whistles?
An interesting theory, but it’s basically the same thing with hotels. Mid-range “business” chains like Holiday Inn or Hampton Inn are much more likely to include free breakfast, etc. than luxury chains, where everything is a separate charge.
There are probably several good reasons why.
# Bertel Schmitt :
April 3rd, 2009 at 11:43 am
So by the end of the year, out of 25 million cars older than 9 years, 600K or maybe 1m will be taken off the road and exchanged for more fuel efficient and cleaner cars. What’s wrong with that?
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Only thing wrong is that it will be dirtier and less efficient.
If people keep their cars for only 9 years, there will be 33% more cars needed than if people keep their cars for 12 years. (4 cars in 36 years vs. 3 cars in 36 years)
12 years of clean running is a reasonable and conservative estimate for cars such as Corolla or Civic. The typical 1997 Corolla is not pollutant.
That’s 33% more pollution in the manufacturing process (coal-fire electricity in steel production) and 33% more pollution in the junkyard.
The US car industry is not really export oriented like Germany so “cash for clunkers” program may be more successful here. Also, in Germany the boost in car sales was mainly confined to super cheap imports – here most of the super cheap cars are domestic so may help to clear some inventory (anyone for a new 07 Sebring?).
The “bringing forward demand” theory also doesn’t really stand up. The recession is causing a a big postponement of demand and an incentive would go some way towards countering that.
However, The question is not if this would stimulate demand but if its the government’s role to borrow money for car purchase incentives – my answer to that would be “No”.
johnthacker :
April 3rd, 2009 at 12:28 pm
There are probably several good reasons why.
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I think it’s due to government bailout, or the expectation of that.
Some businesses rip off their customers during good times. In a free market, these ones die out during a recession. So, after a long time, most surviving business are at least OK with their customers.
However, if governments keep bailing out bad business, keep undeserving jobs, then the natural selection won’t occur. If they can’t have your business, they will have your tax. So, after multiple years, the surviving businesses will not be those who are best at pleasing customers, but will instead be those who are best at lobbying and getting bailouts. Government selection took over natural selection.
The unintended consequence will show up in a month or two when the distortion effect of this subsidy kicks in and the sales of lower-margin-economy cars crash.
There’s no distortion. When the global economy recovers, exports will increase and the sales mix will balance out.
It sounds as if the Germans have figured out a pretty decent way to create a lot of money velocity with minimal effort, while plugging the hole of a portion of their export demand with some increase in domestic sales. For a country in Germany’s position, that can make a lot of sense.
“If people keep their cars for only 9 years, there will be 33% more cars needed than if people keep their cars for 12 years. (4 cars in 36 years vs. 3 cars in 36 years)
12 years of clean running is a reasonable and conservative estimate for cars such as Corolla or Civic. The typical 1997 Corolla is not pollutant.
That’s 33% more pollution in the manufacturing process (coal-fire electricity in steel production) and 33% more pollution in the junkyard.”
On top of this, the amount of energy expended in crushing and recycling used cars is not trivial. Last time I checked auto recycling was an expensive and energy-intensive process. Is it possible that the amount of energy it takes to destroy all these used cars exceeds whatever energy might be saved by getting people to replace them with more fuel-efficient new cars?
Furthermore, think of the kinds of cars that would be eligible for destruction if we tried this sort of thing in America. Along with the Civics and Corollas you mention, some model years of the first-gen Prius, the first-gen Insight, Geo Metros, VW Jetta TDIs, etc are all old enough to be destroyed in exchange for an “efficient” new car. But these cars are quite efficient themselves and all of them (with the possible exception of the TDI) are not very high polluters. Do we really want to destroy these cars?
@pch101
When is the economic recovery going to start?
A little of topic but here is a Marc Faber interview with Peter Schiff. Both these guys predicted this economic mess long before it happened. A very good read if you want to understand the present economy.
http://www.europac.net/report/reports/report_faber.pdf
A little of topic but here is a Marc Faber interview with Peter Schiff. Both these guys predicted this economic mess long before it happened.
Schiff is frankly a bit nuts, but then again, all of the “Austrian” ideologues are over the top. They are consistently wrong, and don’t seem to mind being wrong.
Had you followed Schiff’s advice, you would have lost a fortune. While he was right in calling the bubble bursting in the US housing and equity markets, he was exactly wrong on the bursting of the commodities bubble, the rebound of the US dollar and the impact of the crash on world markets. Shorting the dollar and going long commodities would have been huge, huge mistakes.
You should cut the ideology and get with reality. Aggressive bulls tend to miss the declines, and aggressive bears tend to miss the bottoms. Both extremes are too wrapped up in trying to prove a political point to give you advice that you can use to make money.
Borrow what you can get from both camps, but avoid drinking too much of their Koolaid, lest you end up with your financial version of Jonestown. Rhetoric and returns don’t mix very well.
Pch101, what’s your point? Are you trying to claim the bear market is over at this point? Because it’s not. By a long shot. This current “rally” is nothing but a dead cat bounce.
Are you trying to claim the bear market is over at this point? Because it’s not. By a long shot.
We can all speculate on what will happen (although we should probably not on this thread.)
Personally, I think that you are overly pessimistic, which is easy to be these days given how much it is in vogue to assume the worst. At some point, there will be a bottom, and people like Schiff will completely miss it, because they are heavily invested in the gloom ideology.
Here’s a suggestion: when somebody attempts to makes a profit by beating the same ideological drum, no matter how things are at the time, then be wary. That’s the equivalent of a broken watch — correct only on occasion, and then only due to dumb luck, not because it’s accurate.
Markets go down and up. Take advice from those who know when to switch hats, not those whose helmets are so firmly screwed on that they can’t adapt to change.
Pch101 :
April 3rd, 2009 at 1:31 pm
Had you followed Schiff’s advice, you would have lost a fortune. While he was right in calling the bubble bursting in the US housing and equity markets, he was exactly wrong on the bursting of the commodities bubble, the rebound of the US dollar and the impact of the crash on world markets. Shorting the dollar and going long commodities would have been huge, huge mistakes.
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He was just early and ignored the unwinding effect of the crash.
Right now, I am starting to invest in commodities. It’s about time.
He was just early and ignored the unwinding effect of the crash.
It’s more than that. He has a philosophical and political ax to grind that is so overwhelming that he can’t see straight.
He made strong buy recommendations at the very top of the commodities bubble that were just as absurd as those made by others who completely missed the housing bubble. There’s no difference. Had you bought oil when he recommended it, you would have lost your ass and some other body parts, and you’d be lucky if you could make it back within years, let alone months.
The guy is a clown. His predictions are all along the same lines — America is doomed, hyperinflation is always around the corner, no matter what. He makes the same proclamations, irrespective of conditions, because that’s his shtick. He doesn’t aim for being right, just being repetitive.
Right on Mr. Scmitt! What is wrong with that?
I can’t agree more. If the gov had stayed quiet the situation would have been much worse. People, specially in America I guess, have way too much faith that the market always resolves everything. A little strategic push here and there, specially in such an environment as today is most welcome.
On a side note, here in Brazil the gov lowered taxesFirst for the first 3 months of the year and has now extended it onto July. The result? Record sales, topping last year’s, whcih means we are on the road to a new sales record this year. And the gov has made more than made up for the tax break by the new levels of sales (and the record breaking level of taxes that are being brought in thanks to the increase in sales!). If the policy had not been implemented, sales and tax revenues would have been down at least 30% (according to forecasts). Wow, a little supply-side intervention can work wonders. And everybody wins.
The bad news down here is similar to Germany. Exports have fallen off the cliff, leaving our makers w/ basically the domestic market. But according to an article I read the fixed costs of auto makers have gone down so much (thanks to reductions in raw material costs) that they are more than compensating the lost revenues in exports by the very healthy margins they enjoy down here.
Germany’s export led industrial economy counts on a strong international market for its products. Perhaps they need to put more focus on domestic demand instead of counting on the rest of the world to consume Germany’s output. The cash-for-clunkers program is indeed a way to boost domestic demand in the short term.
Schiff predicted that crash and he will be proven right that this is no short term recession. This is just starting and will continue for years. The US economy has nothing holding it up. Just a lot of government workers and people playing with money. Schiff’s main play was gold and silver and he was right about that. And he will be right about the dollar, it is just a timing thing.
Give President Obama enough time to work his magic.
Schiff predicted that crash
He predicted the housing crash. I give him credit for that, not because he predicted it, but because he predicted the reasons that it would happen with some accuracy.
That cannot be said of pretty much everything else. He was crowing about $200-250 oil when it was topping out last summer. He was pushing other commodities when they were also topping out. He advised shorting the dollar, when it was bottoming. Wrong, wrong, wrong. Expensive, expensive, expensive.
It’s not that he was just wrong, and it obviously wasn’t a timing issue, as he believed that the sky was the limit for commodities and the dollar was dead. It’s that his reasoning is completely off base. He makes historical analogies to Zimbabwe, etc. when they are completely off point. He obviously doesn’t understand what creates inflation or how it can be managed without replicating Weimar Germany.
He’s selling financial snakeoil that matches the gloom-and-doom story of his investment fund. He has been terribly wrong, but doesn’t dare admit it.
He claimed in an interview last year with US News that he was never wrong, which is an astoundingly arrogant thing to say. Nobody is always right; anyone who would claim to be has his head inserted in a dark, tight place and should be approached with skepticism, to say the least.
@Bertel Schmitt:
Unintended Consequences Dept.:
– Each & every wrecked car means less business for the small manufacturer-independent garages. The old car is gone and he new car will be maintained via manufacturer-dependent workshops.
– Each & every wrecked par means less options for buyers in the lowest section of the used car market. The sub-2,500 Euro segment has vanished and you will have to shell out more for a used car.
– This forced wreckage of old cars obviously will bring problems for after-market/replacement part manufacturers, as well. Suddenly and unexpectedly a high percentage of their customer base is dead now.
So, there already are losers. We don’t have to wait until this cash4clunker program expires to find that out.
But from a macro-economical viewpoint, where the short-term goal was to prevent a sagging of new car sales to give a boost to the economy, it might already have worked out well.
Schiff predicted the crash of the US economy and he is right about the economy not going to recover for a long time. We will wait a few months and see if PCH with your prediction of recovery are correct or if Schiff is correct that this economy will continue to worsen.
Schiff has been dead right on this. The dollar is still gonna get crushed, it is just a matter of when and gold and silver are going to be very valuable at some point.
We will see.
Schiff predicted the crash of the US economy and he is right about the economy not going to recover for a long time. We will wait a few months and see if PCH with your prediction of recovery are correct or if Schiff is correct that this economy will continue to worsen.
Markets are dynamic and dependent on multitude of factors.
People pretending to know the future of such things in detail without comprehensive empirical knowledge (rare in econ) or control over contributing variables (rarely possible) are charlatans.
If you feel otherwise, feel free to short all you can at the moment. We’ll see how you do in a few months. Who knows, maybe you’ll get lucky.