WLTP test regime brings sales boost but not higher earnings

One question about the effects of Europe's new WLTP emissions tests has just been answered: European registrations soared in August, and to a lesser extent in July, as automakers rushed to move uncertified vehicles ahead of a Sept. 1 deadline.

August registrations were up 49% in Spain, 40% in France, 25% in Germany, 23% in the UK, 9.3% in Italy (in a down year) — and 53% in Belgium, Europe's sixth-largest market. August sales are traditionally slow, but even so, the seasonally adjusted annual selling rate, or SAAR, rose to an astounding 18.4m vehicles in August, from an already-robust 14.7m units in July.

The sales figures were a combination of heavy automakers' discounts for private and business and what IHS Markit calls "tactical registrations" — meaning dealer or manufacturer registrations to beat the deadline. And, while automakers might be expected to celebrate such robust sales, the reality is that many cars were sold with minimal or no profits.

The "WLTP effect" was particularly sharp in Spain, according to analysts IHS Markit. Business registrations jumped by 86% and rental fleet registrations by 82%. Dealer self-registrations totaled about 20,000 — just under 20% of total sales for the month.

The WLTP, or Worldwide Harmonized Light Vehicle Test Procedure, has been in place for new models since Sept. 1, 2017 and Sept. 1, 2018 for existing models. It seeks to close the gap between as-tested and real-world emissions. Many automakers had difficulty getting all models and variants through the test process, which is longer than the previous NEDC, or New European Driving Cycle.

Through August, European auto sales are on track for a 4.8% increase. However, that's unlikely to materialize, for a number of reasons, analysts said. For one, July and August's steep discounts and incentives lured buyers into showrooms who might have waited until September, normally when the newest models appear. In addition, there will be deals to had on self-registered cars this autumn.

"The pull forward this month (August) is likely to mean softer performances in the months to come for some markets, particularly if customers that are in the market for a new car are attracted by already registered stock," IHS analyst Ian Fletcher wrote in a note this week. IHS Markit is forecasting that the European market will increase by just 1.1% this year, with further slowing in 2019. Another research company, LMC Automotive, expects growth of 1.5%.

The next question will be how the 20 or so European countries that impose emissions-based taxation will take WLTP results into account. Estimates from the EU and analysts suggest that CO2 emissions figures will be about 10% higher across the board — although the actual amount of pollutants might not have changed. That is because taxation will still be based on NEDC figures, which must be "correlated" to WLTP results for older models, and correlated results have been higher than "pure" NEDC figures.

The EU has said that the new emissions tests will be revenue neutral, but many countries have not explained how they will adapt the taxation scale to accomplish this. So far, Germany and Finland have said that the WLTP figure will be used for taxation as of Sept. 1, and Finland will mitigate any increases by adjusting the tax table downward. The impact will be negligible in Germany, where carbon taxes are 2 euros per gram over 95 g/km.

However, a recent study by Autovista found that taxes in France could rise by several thousand euros for midsize and above vehicles if the WLTP figures were used. Given this uncertainty, a report this week from TV news network BFM said that French automakers decided to "register everything that moves" in August.

In a note this week, LMC suggested that some of the August sales surge was due to private and especially fleet buyers who wanted to lock in their emissions-based tax bands. "Savvy buyers may have made purchases before higher taxes were applied where these are linked to CO2 emissions," LMC said. LMC said that one reason for the relatively small gain in Italy in August could be that there is no emission-based taxation.

Looking even farther ahead, the WLTP deadline for light-commercial vehicles is Sept. 1, 2019. Presumably, automakers will have learned lessons from this summer, and are already working to certify new and existing models well ahead of that deadline.

One near-certainty is that consumers will face a dizzying array of figures and and alphabet soup of abbreviations and acronyms in the next few years. Starting Jan. 1, automakers are required to list both NEDC- and WLTP-generated emissions figures until the end of 2020 on their certificates of conformity, in showrooms, on website model configurators and on the energy-efficiency label.

For more information on the WLTP test and its possible consequences to the vehicle logistics sector, please read the briefing paper of ECG.