Summary - The corona virus is shaking up the German automotive world to the core A tsunami of subsidized electric models is flooding the market; never have this many occasions been sold as in the month of July 2020 in the Netherlands and Germany. This gives an extra impulse to new revenue models such as private leases that can change Europe's largest car market for good.

This article is taken from the Financieel Dagblad and translated from Dutch. For the original, click here.

Would you like to lease a Fiat 500 hybrid for only €99 per month?

Although it is not a posh German car, it was available this summer at the MediaMarkt East of the Rhine. "Your personal piece of Dolce Vita." MediaMarkt Germany offered it together with car dealer Gotthardt König, financier Santander Bank and the Berlin start-up Vehiculum, of which the Dutchman Melchior Bauer is one of the founders. "300 Fiat 500s were gone within three weeks," says Bauer. "There were even a thousand gone in four days during a promotion with Lidl last year. And no, it is not costing us any money. We make a profit out of it."

Such car deals are hundreds of euros per month more expensive in the Netherlands. But not an exception in Germany, according to the offers of recent weeks. A Peugeot e-208? €99 Per month. A Nissan Leaf? For the rock-bottom price of €75 per month.

Earth-shattering

The German automotive world has been under pressure for a few years now. Corona is tightening the screws however. "The car market has been completely shaken up," said Bernd Reich of market research firm Deutsche Automobil Treuhand (DAT). "During the quarantine, car trade has been suspended for several weeks and car production has been halted. Meanwhile the subsidies on purchase of electric cars have increased significantly. That sometimes leads to absurd lease offers. "

In Germany, most lease cars are SUVs. The cheapest models are now small electric cars, of which the lease price costs are slashed in half.

Fuel or recharges, maintenance and insurance are not included in the lease. The lease customer is often allowed to drive a maximum of 10,000 or sometimes even only 5,000 kilometer per year, after which it becomes expensive. There are also transfer costs of around € 700 and the customer is often tied to a long contract.

Too big to fail

And yet. Probably nowhere in the world are prices that low. This is thanks to the German government, which has lowered VAT and heavily subsidizes e-cars. Of course, the big car companies have nothing to fear from the crisis. These companies are 'too big to fail' in Germany, says Bauer.

People who have a smaller car budget due to corona, end up with flexible offers and occasions. Less glamorous than new, but an important part of the German (car) economy. In 2019, 3.6 million new cars and 7.2 million used cars were sold in Germany. Sales of new cars are down, while the number of used cars sold is peaking. Never before have so many Dutch and Germans bought a used car as in July.

Electric cars are heavily subsidized in Germany. Yet buyers still seem uncertain about the residual value risk when it is actually taken over by the government. The new digital car companies do know how to handle these subsidies.

Viva la Revolution

Even before corona, in 2019, a record of one in five Germans concluded a contract in the form of a lease or a flexible car subscription instead of buying, according to figures from DAT. The car subscription model, with a shorter term than a lease contract, is on the rise. With the exception of fuel, the costs are covered at an average rate of €500 per month.

The German car professor Ferdinand Dudenhöffer is enthusiastic. "The economic risk is removed from the customer. This can be a real revolution for individuals and small businesses. "

The need for an own car

Rachel Gómez y Maseland, country manager in the Netherlands of the AutoScout24 platform, sees things differently. She thinks the car subscription model is little more than a glorified car rental contract. Not very innovative, but an interesting niche. "The shift from ownership to use in private lease and car subscriptions shows that there is high demand for this mobility solution."

But it does not make new and used cars much less attractive, she says. "The demand for own transport is increasing due to the risk of contamination in public transport."

Dutch founder

Starters such as Vehiculum, Like2Drive, Cluno, SonnenDrive (subsidiary of Shell), Faaren, Finn, but also car rental company Sixt offer car subscriptions or favorable lease agreements in Germany with (virtually) risk-free full-service contracts for a monthly fee.

At Vehiculum, customers can compare lease offers. Bauer says his online distribution of cars from dealers to customers takes an average of 2% commission on the contract value. It does not own any vehicles itself. But Bauer says he is benefiting "enormously" from the purchase subsidies for e-cars because it provides the possibility of extreme discounts.

Stunt prices of €100 per month are exciting, but subscriptions have potential in all price ranges, says car consultant Joachim Deinlein of consultancy firm Oliver Wyman. "Recent research from us shows that a decent segment is willing to pay more than €1000 per month."

Wake-up call

Corona gives e-commerce a boost, even in analogue Germany where people still use a faxing machine and some schools have no internet. The thousands of "car houses" in Germany were the first to reopen in the pandemic by the Merkel government. But the expiration of car dealerships is also not without risk.

"In their closed showrooms, car salesmen discovered that sales were only possible online. That was a tough wake-up call”, says Bauer. A third of the Germans surveyed say they would rather buy their next car online.

Gómez y Maseland says many car houses have had their day. "People used to visit seven car dealers. Now they look online and maybe visit one or two. Car companies would like to go back to the old days, but they will not come back."

Survive

She has to wait and see if all startups survive. "It has a lot to do with the time they have been given", she says, referring to the uncertain corona times. Making a profit is not a priority for these startups. Vehiculum achieved this in just a month, after five years of loss.

"Corona has promoted rather than jeopardized the attractiveness of subscriptions", car expert Deinlein argues. "It has a number of strengths: the all-in-one rate, the seamless consumer journey, the ability to return the car quickly and the residual value risk avoidance."

Man of Convenience

According to Bauer, the customer is focused on one thing nowadays: convenience. Customers can conclude a lease with him in less than 15 minutes. That's smooth for the usually thorough German who has a reputation for being thrifty, sifting through offers down to the smallest detail before signing. Because contract duration lasts up to four years in some cases, this can be validated.

Car manufacturers are now entering the market as well. Yet their prices can be higher. The dump price of €116 per month for which BMW was trying to sell its electric Minis has a catch, warned Berlin auto analyst Matthias Schmidt. The car will not be delivered until July 2021.

Golden times

Prices on the second-hand car market remain stable for the time being, with a record number of cars sold. This is partly because stock has shrunk rapidly with all the demand for personalized transport during the start of the corona period. Moreover, with working from home, lease cars from companies are used longer and replaced later. These cars are therefore not yet on the second-hand market.

For online sales platforms such as Autoscout 24 and Mobile.de, these are golden times with margins of more than 50% of which the other players in the vast German automotive world can only dream of. This part of the automotive world is also undergoing considerable movement. Autoscout 24 was sold to a private equity party for €2.8 billion in March. A Norwegian internet company has bought the part of eBay that includes Mobile.de and also the Dutch Marktplaats for €8 billion.

On top of this, new players are joining the market. Leaseplan's CarNext.com is growing. Car wholesaler Auto1 is expanding with the Autohero platform. Carwow is new, just like Heycar, with VW and Daimler as co-owners. Auto expert Joachim Deinlein expects the automotive world to continue to shake to its foundations for the time being. "The big car companies still have some catching up to do in the field of online platforms. It ain’t over until the fat lady sings."