STOCKHOLM/BERLIN (Bloomberg) -- Germany, which had bucked the decline this year in Europe's auto market, is succumbing to the economic downturn, prompting car companies including premium automaker Mercedes-Benz to increase incentives to a two-year high.
The German carmaker is offering customers a 3,000 euro ($3,900) trade-in incentive to stimulate sales, equaling the price cut Renault is offering for the Megane compact, according to the automakers' German Web sites. Reductions at General Motors Co.'s Opel unit and Ford Motor Co. exceed 3,500 euros on compact cars.
German discounts on new vehicles climbed to an average 12.2 percent last month, the highest since 2010, according to trade publication Autohaus PulsSchlag. The incentives have so far failed to bring in buyers, with an 11 percent car-sales decline in the country in September. The drop in Germany, which accounts for 25 percent of the region's auto market, may pull sales in Europe this year to the lowest level since 1993.
"There's no point buying a new car at the moment," said Jiri Macan, a 59-year-old nurse from Frankfurt who had just purchased a used VW Golf from a dealership in the west of the city. "A used car keeps its value much better."
Largely thanks for their robust domestic market, Volkswagen and Mercedes had been more resistant to the region's sales decline than Renault, PSA/Peugeot-Citroen or Fiat -- until last month. VW's namesake brand posted a 14 percent drop in European registrations in September, with sales in Germany plunging 20 percent from a year earlier, according to industry and government figures.
European sales by Mercedes, the world's third-biggest premium-car manufacturer, fell 6.1 percent, with the drop in Germany almost double that rate.
'Deep in the woods'
"Germany's sales results are sending the signal that we're certainly not out of the woods, but are deep in the woods and aren't going to get out soon," said Jonathon Poskitt, an analyst at LMC Automotive in Oxford, England. "It looks like 2013 is going to be another difficult year."
Four of Europe's five biggest car markets contracted last month, with only the UK posting a gain. The 2012 sales decline in Europe may be the steepest since 1993, said Quynh-Nhu Huynh, statistics director at the Brussels-based European Automobile Manufacturers' Association.
European car registrations last month plummeted 11 percent from a year earlier to 1.13 million vehicles, pushing nine-month sales down 7.2 percent to 9.72 million, the industry association ACEA, said on Tuesday.
The monthly drop was the 12th in a row and, at both the German and Europe-wide levels, was the steepest decline since October 2010, Huynh said. The ACEA this week revised its forecast for European sales downward, projecting an 8 percent to 10 percent contraction in the region this year.
Declines would have been steeper without so-called self-registrations by dealers, in which car-sales outlets file license paperwork on vehicles without customer orders. Those cars are then sold as zero-mile used vehicles at discounts typically of more than 20 percent to move them off dealer lots. The practice accounted for 33.5 percent of German sales in September from as low as 24.5 percent in July, according to Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen.
Renault is selling the Megane in Germany for as little as 12,990 euros, compared with a sticker price of 15,990 euros, according to its Web site. The French automaker is also offering at least 2,500 euros on trade-ins.
"French automakers especially have been pushing incentives lately," Michael Punzet, analyst at DZ Bank in Frankfurt said by phone. "This weighs on the resale value of their vehicles."
South Korea's Hyundai Motor Co., one of the few mass-market carmakers growing sales in Europe, is promoting so-called 5-Star editions of models including the i10 minicar, i20 subcompact and ix20 compact, with savings of as much as 3,360 euros on the 18,970 euro ix35 crossover.
Some drivers are seeking even deeper price cuts than carmakers are willing to provide. Ursula Kienle, a 70-year-old retiree, walked away from the western Frankfurt VW dealership, where 15 of 17 cars in the lot were advertised as discounted, after rejecting the seller's offer. "We wanted to buy the beautiful new Up, but they wouldn't go below 11,000 euros, and we weren't prepared to pay more than 10,000," she said.