Fast track

First the bad news: car sales in Germany dropped 23.4 percent in 2010, compared to the year before, according to the country's Federal Motor Transport Authority (KBA).

Now the good news: analysts this year expect strong demand in Germany and record sales of German-made cars abroad.

"2011 will be the German car industry's best year ever and 2012 will be even better," said Helmut Becker, director of the Munich-based Institute for Economic Analysis and Communication.

The dip in German car sales last year, according to Becker, was due mainly to the state-supported cash-for-clunkers scheme, which resulted in a record 3.81 million new car registrations in 2009.

Cash-for-clunkers in 2009

But if makers of small cars benefited the most from the car scrapping program in 2009, they also suffered the greatest last year.

Of the new cars manufactured and registered in Germany last year, Volkswagen was down 23.8 percent, Opel 31 percent and Ford 31.8 percent. As for imports, new car registrations for Fiat plunged 52.3 percent, followed by Lancia at 57.3 percent.

For the most part, German makers of luxury cars, including Audi, BMW and Daimler, weathered the storm in their home market last year and excelled abroad. Munich-based BMW, for instance, posted a 3.4 percent hike in German sales and a more than 12 percent increase in the United States.

Companies renewing car fleets

"Premium cars sales in Germany are really going to take off in 2011," said Becker, who previously served as the chief economist of BMW. "More than 70 percent of premium cars are purchased by companies and not individuals. Because of the economic crisis, companies delayed renewing their car fleets. Now they're planning to invest again."

Strong demand in export markets, particularly the US and China, kept the factories of German luxury car markers humming all of last year.

That demand more than offset the contraction not only in Germany but also in some other Western European markets, including France and Spain, where demand was also pulled forward by the generous new car sale programs.

German carmakers really have no reason to complain except for some Western European markets where cash-for-clunker programs distorted figures," said Ferdinand Dudenhoeffer, a professor at the University of Duisburg-Essen and an expert on the German auto industry. "Exports were good in 2010 but they are going to be much better in 2011."

The German Association of the Automotive Industry projects record exports of 4.4 million cars in 2011. On top of that come the millions of vehicles manufactured in the US, China and other markets by German carmakers.

Strong US sales

The automotive research center (CAR) at the University of Duisburg-Essen projects global car sales to top a record 62.6 million in 2011, up 3.6 million over the previous year. Sales in Germany are expected to increase 10.2 percent to 3.25 million. In the US, it forecasts new car sales to grow by 11.3 percent to 12.8 million, while in China it expects an increase of 10.4 percent to 12.6 million.

"The US economy is recovering, the Federal Reserve has pumped money into the market and fuel prices are low - all of which is driving car sales," said Willi Diez, director of the Auto Research Institute (IFA) at the University Nuertingen-Geislingen. But Diez warned that German car sales could suffer if the euro exchange rate and local fuel prices were to rise significantly.

German carmakers hope to use the North American International Auto Show in Detroit, which opens on Monday, to further spur demand in the region.

At the show VW, for instance, will take the wraps off a new midsize sedan designed specifically for American consumers. The car will be manufactured at a new $1 billion factory in Chattanooga, Tennessee. It will be the first vehicle that VW has built in the US since the 1980s.

Chinese demand for luxury cars is even more robust. The luxury car segment expanded by more than 40 percent in 2010, led by Audi. Nine of the top selling luxury nameplates in China are German, with the exception being Toyota's Lexus ES, according to marketing research firm J.D. Power and Associates.

Beijing decision

But some experts warn of a slowdown. "Growth of new car sales in China won't be as explosive moving ahead as it has been the past few years," Diez told Deutsche Welle. "It's going to slow down."

One surprise development could stymie growth: The Beijing city government decided in December to limit the number of new cars to ease road congestion. It's still not clear whether other cities like Shanghai, with millions of people earning good salaries, will follow suit. Shares of German premium carmakers dipped after the announcement was made.

Auto expert Becker believes Chinese manufacturers and other volume carmakers could suffer as a result of other cities limiting new car registration - but not luxury car companies. "Money talks, especially in China," he told Deutsche Welle. "Those with money will continue buying luxury cars. You can bet on that."

Author: John Blau
Editor: Andrea Roensberg