The Irish motor industry is in a bit of of a pickle, …or should I say a stew?

              
The overall decline in the registration of new private cars in Ireland is so stark that at times I wonder if I am comparing like with like when observing the trend in new private cars licensed over several years! 

Ireland is not the only Western European country in poor shape.  Car sales throughout Europe, apart from Germany, have declined by over 19% to 4.9 million units.  Overall sales in Spain in 2009 are down 38.3% and overall sales in the UK sunk by 25.9%. 

Germany is the only jewel in the car sector.  Sales there increased this year by 26.1% to 2.1 million vehicles!

Worldwide production of cars is 30% greater than 2009 demand – reflecting the 25% drop in global demand this year.  Audi executives believe that the need to update vehicle technology and models will mean that car makers will not recover pre economic crisis profit levels for the foreseeable future, even if sales volumes recover.

The only ray of optimism in the global car market has been in China where car sales in August 2009 were 90% higher than in August 2008 and are likely to reach 7.3 million vehicles this year.  This trend is spurred by a more broad-based improvement in consumer confidence.

 

Audi vehicle deliveries worldwide

The Irish downturn can be put into a wider European and world context by comparing the delivery of Audi cars in the first half of 2009 with those during the first half of 2008 as benchmark indicator:

Deliveries to customers	Jan – Jun 2009	Jan – Jun 2008	% Change
Germany	113,882	122,404	-7.0%
Australia	5,612	5,103	10.0%
Austria	8,999	8,520	5.6%
Belgium	16,618	18,197	-8.7%
China	66,866	60,509	10.5%
France	24,914	27,993	-11.0%
Holland	7,574	7,893	-4.0%
*Ireland	1,893	3,152	-39.9%
Italy	30,199	30,461	-0.9%
Japan	7,579	7,893	-4.0%
Russia	7,404	8,660	-14.5%
Spain	20,039	30,348	-34.0%
Sweden	6,193	8,196	-24.4%
Switzerland	8,133	8,367	-2.8%
United Kingdom	46,684	57,983	-19.5%
United States	37,845	45,023	-15.9%
Other countries	55,544	65,517	-15.2%
Audi cars worldwide	465,978	516,219	-9.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

However, I think that an authentic acid test of how the economy is performing is to review spending patterns. If they change dramatically in overall terms, as is the case in Ireland, how are the demographic sub-sets responding? 

Four car brands are especially popular in Ireland among those with some discretionary spending power.  They are Audi, BMW, Mercedes Benz and Volvo. 

These brands, combined accounted for 8.5% of the 150,485 new private cars sold here in 2002.  The new private car market expanded by 2006 to 173,273 vehicles and these four brands increased their combined share to 10.6%.  This year an economic hurricane has mutilated the Irish new car sector.  Total units sales for the Jan-Jun six-months were 42,365 but the interesting nugget is that these four car brands have maintained a 10.4% share of this most depressed market.

The demographic cohort that is more likely to purchase these brands include:

• Self-employed individuals, including proprietary directors
• Those receiving dividends or other distributions paid from profits to shareholders of a company resident in Ireland 

New Private Car Registrations during Irish boom

	2002	2006	Change	% Change
Audi	3,060	4,232	+1,172	+38%
BMW	4,147	6,137	+1,990	+48%
Mercedes Benz	3,734	5,159	+1,425	+38%
Volvo	1,807	2,763	+956	+53%
All private cars	150,485	173,273	+22,788	+15%

Source: Central Statistics Office

Income Trends of Likely Buyer Cohort

Turning to the presumed customer cohort, the following illustrates their changes in number and income using income distribution statistics provided by the Revenue Commissioners:

 

Ireland	2002	2006	% Change
Gross income of self-employed, including proprietary directors	€12,822.10M	€20,824.05M	+62%
Number of self-employed, including proprietary directors	251,893	289,321	+14.8%
Dividends and other distributions from profits of companies resident in Ireland	€263.6M	€586.3M	+121%

 Source: Revenue Commissioners

Income tax from self-employed individuals declined by 30.5% in 2008.  The recent spending trend by Irish consumers on ‘personal transport and equipment’ is captured by the recently published edition of National Income and Expenditure:

National spending trend
on ‘Personal Transport and Equipment’

	Expenditure on ‘personal transport and equipment’	% Total personal expenditure
2008	€3,738M	3.18%
2007	€4,282M	3.70%
2006	€3,950M	3,74%
2005	€3,565M	3.69%
2004	€3,068M	3.44%
		Source: Central Statistics Office

 

           

Impact of downturn on 2009 sales

Units sales for the first six months of 2009 are a symptom of a society overburdened with property related debt – either as a purchaser, developer, renter, speculator, wealth hoarder or, merely, incurable optimist.  Put at its simplest – bankers lent excessively to all facets of the property sector and there is no spending, or borrowing capacity left for anything else. 

	Jan-Jun 2009
Audi	1,893
BMW	1,125
Mercedes Benz	1,425
Volvo	485
All private cars	42,365

 

But the 2009 sales of some other high-end brands are also severely pinched:

	Jan-Jun 2009
Alfa Romeo	182
Jaguar	328
Land Rover	271
Lexus	388
Porsche	61
Saab	418

 

Supporting economic dynamics in Ireland

 

	Dec 2002	Dec 2006	Mar 2009
Non-mortgage household debt	€10,642M	€16,984M	€18,336M
Unemployment	84,900	91,800	222,800
Live Register	166,142	155,389	321,271
‘At work’	1,857,000	2,166,700	1,965,600

 Source: Central Banks and CSO

The number on the Live Register at the end of July 2009 has risen by 31% to 435,735 since last March.  An unemployment rate of 12.2% at the end of July 2009 will not revive any new car sales.

 

Double-digit downturn worldwide 


The BMW Group sold 338,190 cars in the second quarter of 2009 and 615,454 in the first half of 2009.  This represented an 18.1% decline in the second quarter and 19.5% decline in the first six months.  BMW made a profit of €121 million in the second quarter, a decline of 76.1%.  Group brands include BMW, Mini and Rolls Royce.

Audi sold 570,388 cars (including Lamborghini and certain VW brands) in the first half of 2009 – an 11% drop over 2008.  Rupert Stadler, the Audi chairman remarked that given the degree of instability in the car market, he predicted a decade of major change that will encompass technologies and structures.

Ford have been attempting to sell its Volvo car unit for some time. One of the interested bidders is the Geely Automobile Holdings from Hong Kong.  This company started out in 1986 as a refrigerator manufacturer.  It evolved into the motorcycle business in the mid 1990’s and by 1998 started to make cars – exporting its first vehicle as recently as 2003.

Ageing buyers abandon luxury brands

Aside from the recession, car buyers in major markets are ageing rapidly.  Those aged 60, and over, represent less than 30% of car buyers but research by Credit Suisse suggests that this cohort will account for 40% of the luxury car buying group by 2020.  They prefer smaller, cheaper and easier-to-drive vehicles.  Profit levels on smaller cars are lower than is the case with larger cars.

Also in The Crimson Observer …

May: Irish motorcycle industry holds the road’

June: Irish motor industry in a dramatic nose dive’