Private demand for Cars still under Pressure in Germany

Economic growth alone is not enough to clear the employment threshold in Germany. Germany’s economic growth continues to rely to a large degree on continued export growth.

With a trade surplus of almost 90 billion euros in 2005, the motor industry was once again the most important driver of industrial growth, making an essential contribution towards stabilizing the national economy via its direct role as an employment provider. The strong domestic demand for commercial vehicles reflects the improved situation of industrial customers, the dynamic investment climate and the way in which replacement demand is driving the economy.

Nevertheless, the car market in Germany is still marked by continued uncertainty on the part of the private buyer. In 2005, another slight increase in the savings rate accompanied by a marginal increase in disposable income gave little room for budgetary maneuver.

The planned 3-percent increase in value added tax from January 1, 2007, other expected tax increases, and the increased burden on the private citizen and on companies from the social security and health system (health insurance contributions, healthcare surcharge) are all having a destabilizing effect on demand.

In the business market, there was talk about limiting the applicability of the so-called “1-percent rule” to vehicles that are used for business more than 50 percent of the time, and this has ruffled feathers unnecessarily. As an alternative to this measure, which was proposed as part of the coalition agreement, there was a discussion about increasing the 1-percent limit to 1.2 percent.

Despite all of this, it has remained possible to avoid adopting this less acceptable tax situation, which would also include vehicles used by employees.

What matters in the implementation of this change to the law is achieving an implementation with as little red tape as possible and focusing on the relevant user groups.