Mercedes-Benz and Audi sales show no signs of slowing in October with both brands recording 11% growth

Audi and Mercedes-Benz posted accelerated sales growth in October 2014 as the boom in global premium-car sales shows few signs of abating. According to a company press release, the Volkswagen (VW) Group's volume premium brand, Audi, posted sales of 146,200 units in October, which kept the brand's year-to-date (ytd) sales growth over the 10% mark, with a 10.1% uplift in the first 10 months of the year. On a country-by-country basis, Audi posted accelerated growth in a number of key markets, with sales in China rising by 17% year on year (y/y) during the month to 48,108 units. The company enjoyed strong sales of its compact vehicles like the A3 and Q3, while Audi continued to defend its market-leading position in the world's biggest car market. Audi sales in the North American region rose by 17.3% y/y to 18,595 units in October, of which the vast majority came from the United States with a rise of 16.5% y/y to 15,150 units. In Europe, sales developed less positively, but still posted a 5.4% y/y increase during the month to 65,100 units, with the United Kingdom the star performer with sales rising 22.1% during the month to 12,721 cars. On a model-by-model basis, the star performers were the A3, Q3, and Q5 in global sales, with the latter model generating growth of 11.4% y/y during October to 22,100 units. Given the Q7 is now in the sixth year of its model cycle, this is a stunning performance. The new TT also went on sale at the end of October and will give the brand an additional boost.

The Mercedes-Benz brand also enjoyed accelerated growth, with sales rising by 11.5% y/y to 140,941 units, according to a company press release – a new volume record for an October for the company. For the ytd, sales rose by 12.4% y/y to 1,336,097 units. The company enjoyed a massively strong month with an increase of 9.8% y/y to 60,632 units, and strong uplifts in Spain (56.3% y/y), Switzerland (19.5%), and Belgium (12.4%). Unit sales in Germany also rose by 4.5% y/y to 23,784 units. The three-pointed star also enjoyed exceptional results in China with a 33.4% y/y rise to 23,150 units. In the US, October was the best single month that Mercedes-Benz has enjoyed in 2014 to date with sales of 28,593 units, up by 4.9% y/y, although Mercedes was offering some particularly aggressive incentives in the equivalent month last year. On a model-by-model basis, the firm's new compact-car range continued to develop very well, with sales rising by 23.7% y/y to 375,435 units, while the new C-Class also saw a 40% uplift in sales in October alone, thanks to the launch of the new W205 model iteration in the first half of the year. Additionally, some 8,397 S-Class sedans were handed over to customers, which constituted a rise of 60.2% y/y. One year after the launch in all core markets, the company has already delivered more than 100,000 units of the new S-Class.

Outlook and implications

These figures are a continuation of the ongoing accelerated growth track that the big three German premium brands – VW, Mercedes-Benz, and BMW – have enjoyed in 2014, with the premium market leader, BMW, posting highly positive growth as well, although the Munich brand has been caught slightly over the first 10 months of the year by its rivals. Perhaps the biggest threat to the ongoing growth of the big three German premiums is what is happening with the Chinese economy, with all three OEMs deriving such large percentages of their overall headline growth rates from the premium-car boom there. IHS's short-term outlook for China predicts some turbulence, saying, "The economy will teeter in the coming quarters due to lack of organic engines of growth. The glut in housing market and industrial capacity, as well as the excesses in lending that financed these gluts, have weighed down on the economy and constrained the government from implementing aggressive stimulus. Further, despite the recent easing of housing purchase restriction policies and the targeted credit easing for the real estate market, housing price deflation has worsened and the construction recession has continued. This suggests a fundamental change in the Chinese real estate market's price expectations. Any growth increases in recent quarters have been mostly due to the government's targeted, small-scale stimulus. Even export rebound has been unsteady due to the renewed weakness in the Eurozone and the underwhelming recovery in the US. The economy has thus proved it currently lacks organic sources to generate sustainable growth acceleration, and we expect this trend to continue into 2015."

This short-term picture indicates that the big three German automakers can expect some slower growth rates in their main growth-driving market of China in the coming months. However, all three are still enjoying strong growth from their sport utility vehicle (SUV) and compact-car ranges, and there is also a constant flow of new models to continue to generate showroom footfall. Mercedes' new C-Class is proving popular, but it will face renewed competition next year from the face-lifted BMW 3-Series and the new Audi A4. For full-year 2014, we forecast that BMW will maintain its lead on pure passenger-car brand sales with 1.79 million units, with Audi making the biggest gain of over 160,000 units to 1.73 million units, and Mercedes-Benz in third place with 1.59 million units. There will generally be a steady growth track between now and the end of the decade, with BMW-brand cars recording sales of 2.22 million by 2020, Audi second with 2.10 million units, and Mercedes-Benz trailing in third with sales of 1.86 million units.