“The Auto Festival has been very good, especially if you think of the position we came from and the fears we had before the festival,” says John Kaysen. The veteran president of the Association des distributeurs automobiles luxembourgeois (ADAL) explains that although the number of new registrations will only be made official towards the end of April, when the cars ordered during the festival finally arrive and are registered, the mood among his members is upbeat. His counterpart at the Fédération des garagistes du Grand-Duché de Luxembourg (Fégarlux), which organises the festival with ADAL, is also optimistic. Ernest Pirsch says that even before the festival, dealers had not really been significantly impacted by the crisis. “I think the effects would have been felt in November and December last year, but in 2008 we had an increase in new registrations of two per cent,” he says. During the first weekend of the festival itself, dealerships were swarming with people.

“Of course, on the one hand, you have the crisis, and on the other, the manufacturers,” says Pirsch. “If you have a range of relatively new models it is much easier to sell cars.” The dealers have also been helped by external factors. “The right help came at the right time,” says John Kaysen. Firstly, the government introduced the second phase of its CARe system of subsidies for buyers of new vehicles with low CO2 emissions. Secondly, local banks were offering extremely good value rates on loans especially for the Auto Festival period. So could the success of the festival be a bit of an anomaly? Certainly Jean Kerschen, president of the Fédération luxembourgeoise des loueurs de véhicules (FLLV) believes the crisis has had a negative impact on confidence in the market. “We have noticed that companies are being more careful with their decisions regarding the type of cars they choose,” he says.

Nevertheless, leasing companies in Luxembourg have been enjoying a period of sustained success in terms of market share over the last ten years. Federation figures show that the number of cars purchased for long-term lease has grown by an average of close to 14.3% over each of the last four years and the lease fleet now comprises around 29,000 vehicles. Last year, lease companies purchased some 12,000 vehicles and a further 4,000 were bought for short-term rentals. Those 16,000 cars account for well over 35% of the total of 45,211 new registrations in Luxembourg in 2008.

Fleet requirements

But while private customers have been eagerly taking advantage of the deals being offered by manufacturers and dealerships over the last few months, and especially during the Auto Festival, Kerschen explains that the same does not necessarily apply to leasing companies. “There are some incredibly good deals out there because of the crisis,” he says. “But the best deals are for end-of-life cars, when manufacturers are about to launch a new model.” This is not ideal for lease companies, because the residual value of the vehicle depreciates rapidly when the new model comes on to the market. Other factors also come into play for lease companies that do not affect private buyers. “Fleet managers just don’t have the same time as individuals. They have a fleet requirement that needs fulfilling, whereas a private person can delay their purchase for three or six months.”

Although fleet managers may be looking for cars with lower emissions and engine size, thanks to government initiatives such as the CARe subsidy and the increase on road tax for more powerful cars, Kerschen says that they still have to meet the expectations of employees. “You can’t suddenly take something away from people. If it is in their contract that they are allowed a certain category of car: that is what they should get. A company car is a motivation instrument.” Kerschen welcomed the CARe initiative to offer a reimbursement of 750 euros to buyers of vehicles with official CO2 emissions of less than 120 g/km and also of fine particles of less than 5 mg/km. But he says that not many fleet cars were affected, even though the law was changed retroactively to include lease cars as well as private purchases.

The second phase of the initiative, CARe+ was introduced recently to encourage new purchases. It offers incentives of up to 2,500 euros to those drivers purchasing low emissions vehicles who take a car that is over 10 years old off the road. “That law hasn’t affected our business at all,” says Jean Kerschen. “We hardly even have vehicles over four years old, and none beyond five years.” He says that the quick rotation of fleets has not only contributed to the cleanliness of the Luxembourg cars, but also to the recently announced reduction in the number of road deaths.

Young fleet

But Ernest Pirsch says that the relatively young Luxembourg fleet poses other problems. “We end up with a significant number of second-hand cars, and the local market for them is low because of the high purchase power in Luxembourg. So we are dependent on the foreign second-hand markets, and they have become saturated.” But there is no doubt that the government initiatives have helped the local car retail sector. “They have an ecological basis, but they have had a definite economic impact,” says Ernest Pirsch. “When the government first introduced the increased tax for more powerful cars we did become agitated. We always said that if drivers in one country in Europe would not go along with lowering engine size, it was the Luxembourgers. But they quickly swallowed that pill, and it has now become a trend to buy a cleaner car.” And while local drivers are buying smaller and more energy-efficient cars, they have also been thinking twice before choosing options such as built-in navigation systems or TV screens for the children, says Pirsch. John Kaysen says he was surprised how many vehicles in the Luxembourg fleet were eligible for the CARe+ subsidy. “I was astonished to hear talk that there might be up to 50,000 cars over ten years old. Especially as the average age of a car in Luxembourg is just five years and four months.”

However, another government policy has not been so eagerly welcomed by Fégarlux and ADAL. Ernest Pirsch has heavily criticised the single statute legislation which came into effect on 1 January this year. At a press conference before the Auto Festival he said it was introduced at the wrong time, although he admits that the government could not have foreseen the crisis when the date of the law’s transposition was first decided. “Well, it shouldn’t have been introduced at all,” says Pirsch with a sardonic smile. “The problem is that the manufacturers are in crisis and many of the problems have become the burden of the dealers – getting rid of old stock, looking hard at margins. And the single statute costs us money, there is no escaping that. I mean, if you are a family business and you have to pay for two or three sick employees it’s going to hurt.”