Industry Trend Analysis - Quick View: German Election - Implications For Autos - NOV 2017

BMI View: The likelihood of the CDU, FDP and Greens parties forming a ruling coalition in Germany following the national election has strengthened our expectations for a tougher crackdown on vehicle emissions, more generous incentives for EVs and more pressure for the state to divest its ownership of Volkswagen shares.

Following the German elections on Sunday, our Country Risk team has outlined their scenario for Germany's next ruling government based on the core view of a new 'Jamaica coalition' between the Christian Democratic Union (CDU), the Free Democratic Party (FDP) and the Alliance 90/The Greens party ( see ' Three-Way Coalition Negotiations To Usher In Period Of Uncertainty ' , September 25). In line with this view, we have ramped up our expectations that the government will take a harder line on emissions-related issues including the current diesel crackdown and the roll-out of alternative fuelled vehicles, particularly electric vehicles (EVs) due to the inclusion of the more environmentally-focused Green party.

Key Implications Reiterated

  • Emissions Crackdown To Continue: we previously highlighted that the German government will become increasingly tougher on German automakers and larger Tier 1 suppliers in regards to regulating emissions - particularly, diesel emissions - and punishments for non-compliance ( see 'German Election: Merkel Victory Will Force Industry Innovation', August 23 2017). Despite the potential commercial damage a crackdown on emissions may bring to major German brands, rhetoric from the CDU, FPD and Greens during the election campaign all remained steadfastly critical of German automotive producers. This suggests this topic is very much likely to shape a tougher future government policy on emissions; a view that is strengthened by the inclusion of the Greens as a junior coalition partner whose environmentally-focused manifesto heavily prioritised a tougher policy stance on emissions issues.

  • EV Incentive Strategy Likely To Be Intensified: We believe Germany is more likely to push ahead with its ambitious EV strategy following the election. Like the emissions crackdown outlined above, the inclusion of the environmentally-focused Greens party in a new government will raise the likelihood of the new German government ramping up incentives for EV ownership. The Greens' campaign prioritised alternative fuelled transport and will likely pursue this policy goal if they firm part of the government.

  • Risk Of Volkswagen Ownership Shake-Up: we reiterate that state ownership of Germany's biggest carmaker, Volkswagen, faces a higher threat of divestment. The Lower Saxony government's 20% stake in the company was criticised most strongly by the FDP and with the party now likely to form part of the government, pressure to divest this stake is likely to grow even more.

Sales And Production Forecasts Remain Intact
Germany - Vehicle Production And Sales Forecasts, % chg y-o-y
f = BMI forecast. Source: OICA, VDA, BMI

Despite the potential regulatory and commercial shake-ups that may stem from a change in government, we stress that our sales and production forecasts remain unchanged but risks are now weighted to the downside for sales. We continue to forecast growth in new vehicle sales in Germany to reach 4.6% in 2017, and to average 4.3% per year up to 2021, with the support of a healthy labour market, weak inflationary pressures and low borrowing costs. However, with the government now likely to push its EV agenda more strongly, there is a risk the government could implement new disincentives for purchasing petrol and diesel vehicles, which in the short run could hurt overall sales volumes. On the other hand, German vehicle production will be impacted more by a slowdown in foreign vehicle demand in markets like the UK and the US rather than by domestic political events so we maintain our average annual vehicle production growth forecast of 2.2% through to 2021.