Bayerische Motoren Werke AG (BMW), Volkswagen AG (VOW) and Mercedes-Benz are all likely to post record sales for 2012 even as demand for cars in Europe has tumbled. Deutsche Telekom AG (DTE) is partly to thank for that.
Germany’s largest phone company, which owns 38,000 vehicles in its home country -- or more than one for every two employees there -- is among corporate car buyers taking advantage of tax breaks that have propped up the auto market. With private demand slackening, cars bought by companies for employee use accounted for 32 percent of German auto sales last year, according to the country’s motor vehicle office, KBA, up from 27 percent in 2010.
Demand from corporate fleets helped keep sales in Europe’s largest auto market relatively steady, slipping 2.9 percent last year even as European demand plunged to the lowest level in almost two decades.
“Company cars are the most stable sector of the German market,” said Christoph Stuermer, an analyst with IHS Automotive in Frankfurt. “Private buyers face high uncertainty, while business clients were still investing their profits from previous years.”
This year will likely be little different. With deliveries in the region set to fall for the sixth straight year, German car sales are forecast to slip to about 3 million vehicles this year from 3.1 million in 2012, according to the VDA trade group. Company cars will again provide a firm base.
In the U.S., less than 20 percent of cars were purchased by employers, including government agencies, in 2011, in line with previous years, according to CNW Marketing Research Inc. in Bandon, Oregon. When including dealers and rental-car companies, businesses in Germany accounted for as much as 64 percent of sales in November, according to KBA. For the full year, regular consumers bought 38 percent of the cars sold in the country, the lowest level since 2007.
Demand from corporate buyers such as Deutsche Telekom, which typically replace vehicles every two to four years, is underpinned by tax rules that make cars an attractive perk for employees. German automakers dominate the segment with an 86 percent share, providing them with a lucrative home market to underpin expansion abroad. VW, BMW and Daimler AG (DAI)’s Mercedes were poised to post global sales records in 2012, according to company data.
Employees aren’t restricted to using corporate cars for business trips, and while the vehicles increase their tax burden, they’re a good deal. Under a law that’s been in place since 1996, workers must pay taxes on 1 percent of the car’s list price per month.
For a BMW 520i, the base version of the 5-Series mid-sized sedan, at least 402 euros ($529) gets added to monthly wages. At Germany’s highest income tax rate of 45 percent, an employee would pay 181 euros a month in taxes, before deductions for business use of the vehicle. Leasing the same car directly from BMW would cost an employee 426 euros a month.
“Compared to the taxes paid on company cars in neighboring countries, the German tax office is asking for peanuts,” Nick Margetts, a director at market researcher JATO Dynamics in Limburg, Germany.
In 2002, the U.K. changed its tax regime for company cars to favor more efficient vehicles. If a car is available for private use, the country taxes 15 percent to 35 percent of the list price annually depending on carbon dioxide emissions. The change led to a reduction of company cars in the U.K. by 25 percent over four years after going into effect. France doesn’t have a program specifically for company cars.
In Germany, the advantage is even better for fully loaded models. With a list price of 56,650 euros, an Audi A6 sport selection with 245-horsepower diesel engine and four-wheel drive would cost an employee 255 euros a month in taxes. That’s 465 euros less than the lease rate offered on Audi’s website.
“Many corporate customers choose fully equipped vehicles with higher transaction prices,” said Michael Renz, head of sales and marketing for VW’s Audi brand in Germany. “It’s an attractive business for us.”
The benefit extends well beyond staid executive sedans. Corporate customers accounted for 71 percent of registrations for Porsche models in 2011, boosting Volkswagen, which owns the brand. Overall, the luxury-car segment is the key beneficiary. Some 85 percent of high-end vehicles in Germany are registered to companies, including dealers and rental agencies, KBA said.
“You get the chance to drive a car that you could otherwise never afford,” said Michael Mueller-Goernert, an official with German transport club VCD.
To handle corporate customers, carmakers employ specialized teams for fleet sales. To boost revenue further, they offer fleet managers a range of add-on services such as maintenance, managing tire changes, and handling insurance claims. Munich- based BMW has its own fleet-management business called Alphabet and advises clients on improving the use of company cars by organizing in-house car-sharing programs for staff.
Corporate customers are also helping to shore up demand for the electric vehicles that German automakers are starting to introduce. Deutsche Telekom, for instance, is encouraging employees to choose cars with lower fuel consumption to achieve a goal of reducing the emissions of its car fleet.
With consumers fretting over the future, keeping German companies interested in the car market and spending on upmarket models is critical for BMW, VW and Daimler as tougher competition depresses car prices across Europe.
“Any change that would suffocate company demand would be very damaging,” said Axel Koblitz, managing director of the German auto service and dealer association ZDK. “Sinking private sales are a cause for concern.”
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