Car Market

Driving a Hard But Costly Bargain

Source: Andrew Wong/Volkswagen/dpa
There are bargains galore in Germany.
  • Why it matters

    Why it matters

    If Volkswagen continues to sell cars only a heavy discount, its profits will eventually suffer.

  • Facts

    Facts

    • Volkswagen is pushing the Golf model onto the market and riling the competition and upsetting VW dealers.
    • The dealerships are earning less and less.
    • Other carmakers are also offering hefty discounts.
  • Audio

    Audio

  • Pdf

A Volkswagen dealer in west-central Germany seems a bit embarrassed when he makes an offer via YouTube: The new Golf VII for €13,450 ($15,135) – about €5,000 below the manufacturer’s suggested retail price. The dealer, the ad says, has obtained the cars on “very favorable terms” from VW. Order now, and you can take delivery later.

Self-registered cars are the gray area in car sales figures. Car makers often offer bonuses to car dealers who hit sales targets. To hit these targets, car dealers often buy the cars themselves and then sell them on to customers, often at a discount. The dealers bet on the fact that the bonuses paid by car makers will offset any discounts they have to offer to shift the models. The trend for self-registering has increased in the last year.

It is clear that the Golf – the icon of the VW Group – is being widely sold at a significant discount. That’s according to an exclusive analysis made on behalf of Handelsblatt by the Center of Automotive Research (CAR) of the University of Duisburg-Essen. More than a third of the Golfs currently being sold in Germany are registered to either the automaker or a dealer – 36.2 percent, to be exact.

VW cites increasing demand for employee leasing, where the car is essentially rented from Volkswagen. But even these company- registered lease cars are being sold at a significant discount. And the cheap prices come for the Golf line’s newest generation that’s barely three years old.

Much of the pricing is to do with the fact that Opel’s new Astra, a model that is an open challenger to the Golf, is coming to the market in September.

“It looks as if VW is getting ready for the new Opel Astra with a broad sales campaign,” said Ferdinand Dudenhöffer, CAR director.

The strategy appears to be working, as far as sales are concerned. VW has increased its sales in Germany by 8.2 percent and the Golf by even more.

As a car nation, Germany gets older with each passing year. The average age of a car on the road has reached a record level: nine years. The average age of new car buyers is 53.

But this rise in sales has come at a price, literally.

Dealers don’t seem all that enthusiastic about the VW Group’s sales approach, which appears to be to encourage all sellers to discount to shift models. “There is no growth anymore, just predatory competition,” VW-Audi dealers association president Dirk Weddigen von Knapp told trade magazine Autohaus a few months ago. The dealers’ profit margins are stagnating at about 1.5 percent. Twenty percent of dealers reportedly operate at a loss.

VW is facing a difficult situation in Germany. Statistically, most Germans own a car: 550 vehicles exist for every 1,000 people. The market is saturated, experts say. That’s why the discount battle won’t end anytime soon, say CAR researchers who regularly analyze the market, discounts and rebates. Despite a healthy economy and the record age of the cars on the roads, high discounting in Germany remains steady.

As a car nation, Germany gets older with each passing year. The average age of a car on the road has reached a record level: nine years. The average age of new car buyers is 53.

CAR researchers calculate the average discount on cars sold in July was about 12 percent. Although the summer is traditionally a weak selling season, the rebates are at the same high level. In July, the percentage of self-registered cars was at a 10 year high of 28.5 percent.

VW isn’t the only one with a discount policy. The Astra is driving the percentage of company registrations at Opel to new heights, and subsequent discount deals to customers are likely to follow.

The top car companies are trying to sell both their outgoing and new models before the International Motor Show, known as the IAA, begins in Frankfurt in mid-September. VW has become a direct target in the discount war.

A BMW dealer in Germany’s western-central Ruhr District is promising a €3,000 premium to anyone who switches from a VW to a new BMW 2 Series Active Tourer. The BMW ad touts a simple slogan: “Your Volkswagen is dear and precious to us.”

Volkswagen management must be relieved at least someone feels that way.

Lukas Bay is an editor with Handelsblatt’s companies and markets desk. To contact the author: bay@handelsblatt.com

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