Germany’s carmakers struggled in last year’s global downturn, which didn’t spare luxury brands any more than it did mainstream segments. But this year is turning out better for them than anyone anticipated.
With premium car sales rebounding in most regions, Daimler AG’s Mercedes-Benz Cars, BMW AG and Volkswagen AG’s Audi and other upscale brands are benefitting from deep cuts in staff and other costs in 2009.
In addition to the economic recovery boosting the overall auto industry, Germany’s carmakers are profiting from strong demand for premium cars in China and other emerging markets, a recovery in credit availability, and favorable currency trends.
In China, premium car sales are growing at twice the market’s rate, estimated at 20 percent this year. Meanwhile, in Europe, the slide in the euro triggered by the Greek debt crisis is making German-made exports more competitive globally.
“No wonder the German auto companies currently exude confidence,” Citi Investment Research analyst John Lawson wrote in a research report.
Citi has raised its share-price targets for Daimler and BMW and its earnings estimates for all three major German carmakers.
Even though their home market is suffering a bad hangover after last year’s generous “cash for clunkers” incentives from the German government, premium cars are holding up better.
“They were in the doldrums last year,” said Christoph Stürmer, a Frankfurt-based director at forecasting firm IHS Automotive, while VW and other mainstream brands benefited from the German incentives.
A year ago, some analysts and even executives questioned whether the luxury car sector would recover to pre-recession levels in its current form. Industry pundits declared that austerity was in, and conspicuous consumption was out.
Premium cars, with their focus on high performance, were considered out of step with the rising concerns about the environment. It was unclear how premium carmakers would fulfill strict emission norms coming into force in most markets.
“Only a year ago, the notion that the ‘business model was broken’ due to margin crushing demands of carbon-dioxide regulators and green consumers was still a major investor fear,” Lawson wrote. That fear could return, he said, but for the moment, it has been dispelled by better-than-expected sales results.
Underscoring the growing optimism, BMW raised its full-year sales and earnings forecasts last week, and Daimler issued preliminary second-quarter results, including pre-tax earnings of $2.5 billion, that were above investors’ expectations.
“The second quarter earnings before interest and taxes was especially carried by Mercedes-Benz Cars,” Daimler said. “The main factors for this excellent result were a positive sales development, especially in China and the U.S., an advantageous product mix as well as better price penetration and positive (foreign) exchange effects.”
Chuck Ghesquiere, owner of Mercedes-Benz of Bloomfield Hills, said sales at his store have been up every month this year.
“People who earn money will spend it,” he said. “That’s how Americans are built. They’ll get nervous and pull back, but they won’t pull back for very long.”
BMW, whose brands include Mini and Rolls-Royce, reported a 13.1 percent rise in half-year vehicle sales and predicted annual sales would rise by around 10 percent to more than 1.4 million vehicles. “BMW Group now expects,” it said, “to report much better … full-year earnings than previously forecast.”
