Soaring prices and declining sales volumes are leading to an auto affordability crisis in Germany. While overall revenue from automobile sales increased by 8% from 2019 to 2024, this growth masked troubling trends that threaten the long-term viability of original equipment manufacturers (OEMs). Together with JATO, the global leader in automotive data, analysis, and intelligence, we assessed the current market environment, the factors driving the affordability crisis, and the strategic actions OEMs and dealers can take to navigate these challenges.
Price shifts reshape consumer behavior in auto market
A 40% surge in vehicle prices from 2019 to 2024 significantly contributed to revenue growth, despite a 22% drop in sales volume, according to JATO data. More than half of the surge in price is explained by a shift towards electrification . However, only about 30% of the price increase can be tracked to battery electric vehicles (BEV), while the remaining portion was driven by plug-in hybrid vehicles (PHEV) and mild hybrid electric vehicles (MHEV). The rest of the surge was influenced by inflation and various other factors.
Sales declines were primarily concentrated in vehicles priced under €30,000. Higher price categories, particularly those between €30,000 and €40,000 and above €45,000, only partially offset this drop. Consumers are increasingly gravitating toward more expensive options from OEMs), while some are unable to afford a vehicle at all.
In contrast, some brands that successfully positioned themselves as value-oriented have benefitted from the current market dynamics. For example, one OEM increased prices by 48% but still achieved a 19% increase in volumes by maintaining a low-price band bracket of approximately €15,000. This success contrast with competitors that are discontinuing their offerings.
Despite a 24% increase in net salaries between 2019 and 2024, car affordability in Germany decreased by 11%, largely due to the prices hikes and a reduction in entry offers from OEMs. As a result, there’s been an increase in financing and leasing options, including new subscription models, as well as growth in the used car market. These market forces post a significant risk to OEMs. If these trends continue, many manufacturers may struggle to achieve both volume and profitability.
Four strategic solutions For OEMs to meet auto market demands
The affordability crisis demands immediate and strategic action. As vehicle prices continue to rise and sales volumes decline, manufacturers must refine their strategies to meet the evolving needs of consumers. By revising their product portfolios, offer structures, pricing and promotion strategies, as well as payment and financing models, OEMs can effectively navigate these challenges and position themselves for profitable growth.
Expanding product portfolio for greater affordability
To enhance its product portfolio, OEMs should consider re-entering more affordable price bands through a strategic model mix. This includes offering base versions of certain models at lower entry prices, with a particular focus on budget-friendly vehicle lines. Additionally, they should explore new vehicle concepts that prioritize affordability, such as cost-effective versions of large vehicles. The introduction of new and innovative vehicle concepts, such as quadricycles, could be a valuable addition to portfolios.
Offering structure to improve market reach
To enhance the offer structure, companies should implement greater price differentiation within their product portfolios, such as providing SUVs that cater to a broader customer spectrum. Additionally, optimizing the way options are packaged can significantly enhance product differentiation and improve profit margins. It’s about gaining more insights into consumers’ needs and then presenting clear and compelling choices versus presenting packages that result in sizeable price jumps.
This customer budgets ensures that product offerings align with the financial capabilities and expectations of potential buyers. By understanding and accommodating the various budget constraints of different customer segments, the company can tailor its pricing and packaging strategies to provide more attractive options. Furthermore, incorporating complementary services, such as charging installation, can enhance the overall value proposition and improve customer satisfaction.
Refining pricing and promotion strategies for competitive growth
Companies should focus on optimizing their pricing approach, including refining list prices and OEM discounts. It is important to optimize dealer discounts and promotional efforts to ensure competitiveness in the market. Leveraging advanced technology and campaign engines can facilitate the management of both strategic and tactical pricing decisions. This technology can also help build pricing recommendations for OEMs and dealers by providing valuable insights into consumer behavior, market trends, and competitive pricing strategies.
Expanding financing models to boost accessibility
Companies should expand their range of leasing, financing, and subscription options. By offering more diverse payment models, customers can choose solutions that best fit their financial needs. Enhancing flexibility of current models, such as introducing a Leasing 2.0 concept with adjustable durations and mileage limits can further improve accessibility. This increased flexibility not only accommodates diverse customer needs but also encourages greater accessibility to products, driving higher sales and customer satisfaction. Tailored financing options for BEVs and used cars further strengthen affordability ,as leasing and financing rates are generally lower in these categories.
By revising product portfolios, offer structures, pricing and promotion strategies, as well as payment and financing models, manufacturers can navigate the challenges posed by rising prices and declining sales. As the market continues to evolve, companies that adapt swiftly and effectively will be best positioned for profitable growth in the future.