Western European Passenger Car Sales Fall by 8.1% in Q1—Forecast

The latest IHS Automotive Western European passenger car sales forecast has seen a mild slowdown in the rate of decline in the market with a 6.9% y/y fall in sales during March resulting in a cumulative sales total for the month of 1,428,531 units. This is still more than 100,000 units less than the figure recorded last year of 1,534,901. This was actually an improvement of the rate of decline which was recorded during the first two months of the year and helped lower the year-to-date (YTD) rate of decline posted in January and February of 9.1% to 8.1% for the first quarter of the year. However, the marginal improvement in the market's performance in March in terms of halting the degree of the sales slide did little to improve the annualised Henderson curve SAAR rate, with the market's SAAR now below the lowest level recorded during the depths of the financial crisis in December 2008 when the annualised rate hit a previous low point of 12.351. In March, this fell to 12,291, which gives the best indication of the current fundamental weakness in the market. The SAAR is now more than 2 million units below the relatively stable average SAAR rate that was recorded across Western Europe prior to the financial crisis.

As pointed out above, the one source of optimism that the market was able to generate in March was the performance of the German market, which posted positive growth for the first time this year after mild declines in January and February. The market managed a 3.4% year-on-year (y/y) rise during the month, which was enough to allow it to post an overall YTD growth rate of 1.3% y/y for the first quarter. This result was helped by a particularly strong showing from the domestic premium OEMs with BMW enjoying one of its strongest ever months, helped by the launch of the latest 3-Series model. However, as has been the case in recent months the region's second largest market France took another significant hit from the relatively high base comparison last year, as a result of the fulfilment of the last remaining scrappage scheme orders, while this combined with fundamental market weakness to produce a decline during the month of 23.2% y/y to 197,774 units, down from 257,631 units at the same point last year. This was an acceleration in the rate of decline in the first two months of the year and left the first-quarter sales down 21.6% y/y to 507,830 units. However, one anomaly that is created during March's sales figures is that momentarily at least the UK becomes Europe's biggest market on a one-off basis as result of the registration plate changeover. The market managed to post sales of 372,861 units during March, which was a positive 1.8% y/y rise. In YTD terms, the UK also managed to post a positive sales result with a 0.9% y/y increase to 563,556 units. Spain continued to bump along the bottom with the market recording sales of 84,427 units, which was a 4.5% fall on the same month last year. For the YTD the figure was a 1.9% y/y fall to 204,122 units. This means that the Spanish market is on target to hit around 800,000 units, around half its pre-crisis sales volume. Italy recorded the biggest single fall of the major European market with a 27% decline to 138,137 units. This was actually better than some expectations, and led to an overall decline during the first quarter of 21.1% y/y.

Outlook and Implications

The first-quarter figures once more paints a bleak picture in terms of the ongoing short and medium term development of the Western European passenger car market. Germany is managing to at least retain a stable and relatively healthy sales performance, while the UK also enjoyed its usual fillip as a result of the number plate change at the beginning of March. However, a combination of high base comparisons and fundamental market weakness on the other major European markets caused a large decline in the case of Italy and France, while Spain continued its underwhelming market performance, actually recording a decline on last year's already very weak performance.

The positive sales result that Germany posted in March and the overall rise in the first quarter has to be seen as a positive sign of the German economy's ability to withstand the economic shocks that are currently still occurring in other parts of the Eurozone. The comparatively weak euro continues to help Germany's industrial and manufacturing exports to North America and Asia and it appears that both business and consumer confidence remain relatively strong as a result. Despite the turbulence in the Eurozone IHS Global Insight remains relatively positive about the macroeconomic environment in Germany throughout 2012, although we are forecasting a slowdown in overall growth momentum, with GDP growth slowing to 0.7%, down from 3.1% in 2011, before there is a recovery in 2013. Important economic indicators such as the Ifo and purchasing managers' indices have turned higher again since November/December, underscoring the German economy's resilience because of its strong international competitiveness and fairly healthy domestic fundamentals, including sizeable income increases for consumers and improving public finances. Despite the seemingly strong performance recorded in the UK market, the data this month should be taken in the context of the period before the economic crisis, which started to hit in 2008 and 2009. In the five years prior, March sales averaged some 446,500 units, which makes this month's tally around 16.5% y/y lower. This is being caused by the ongoing economic issues facing the UK. While IHS Global Insight anticipates that the UK should miss out on a return to recession, still squeezed consumer purchasing power, tighter credit conditions, tight fiscal policy, and muted global growth could come to bear on the market. For now, the SMMT continues to stand by its expectation for the UK passenger car market, in that it will see a slight contraction in demand during 2012 to 1.92 million units, a 1.1% y/y decline, with a firmer recovery to 1.98 million units in 2013. IHS Automotive has recently tweaked its expectations for the year and now believes that sales will dip just very slightly to around the 1.93-million-unit mark, however, but will return to over 2 million units in 2013.

In France, demand levels have largely been as expected during the first quarter of the year, as while the scrapping incentive and other environmental benefits on offer were stopped at the end of December 2010, customers and dealers were given a three-month grace period to fulfil orders in the early months of 2011. Nonetheless, while it has now navigated its way out of this high base of comparison period, the market is likely to continue to struggle this year as a result of a struggling domestic economy. Although French GDP posted a surprise increase during the fourth quarter of 2011, short-term indicators suggest that activity is likely to be muted during the first half of 2012. Contributing factors to this are the tighter fiscal policy, although an optimistic growth figure for 2012 suggests more may need to be done to achieve its deficit reduction targets. Also, unemployment rates are also expected to remain high due to the weak conditions and very low business confidence, and this is anticipated to will remain relatively high over the medium term. Symptoms of this may well already be seen in the order intake rate of automakers which was seen to be continued to have declined in what should have been a low base of comparison month of February, with many dealers cautious about developments in the company car market (see France: 15 March 2012: French Passenger Car Orders Fall 7% Y/Y in February—Report). With this in mind, IHS Automotive anticipates that the passenger car market will come under far more pressure in 2012 than it has in recent years. We anticipate that the market will in fact fall by over 12% y/y this year, to around 1.94 million units, taking it below the pre-crisis annual average of around 2 million units.

Although this is Italy's worst decline so far and leaves the market at a level around that last seen in March 1980, this is better than had been expected, given the anticipated impact from the strike action. Vehicle supply to dealers was very difficult for over a month until it was brought to an end on 28 May, and the fallout from this has been more limited than expected. Fiat was one of the biggest casualties of the strike action; its plants were brought to a halt entirely for a period temporarily during this time, as it was unable to ship vehicles locally and to the rest of Europe (see Italy: 26 March 2012: Fiat Italian Plants to Stop Again on Truck Driver Strike Action). This is perhaps one of the reasons why the automaker's chief executive officer (CEO) Sergio Marchionne expected demand to be down during this month by up to 40% y/y (see Italy: 2 April 2012: Fiat CEO Expects Italian Vehicle Sales During March to Show "Horrible Month"). Factors which are thought to have helped include a strong push to sell from stock, a stronger than usual last three days of the month (and quarter), the flow of self-registrations, as well as not all brands having been affected equally. On top of this, Fiat is still implementing local stoppages driven by its poor market performance across Europe from its ageing line-up. Nevertheless, the economic situation continues to have a massive influence over the Italian market. One of the major problems is a dormant household economy, with nervous consumers continuing to refrain from non-essential spending, and the near-term outlook for household spending is poor at best As a result, IHS Automotive expects the Italian passenger car market to slip to 1.56 million units in 2012, another 12.6% y/y decline and taking it well below the 2.3-million average registered between 2003 and 2007. We also believe that it will be several years before the market comes close to its pre-crisis levels, although a modest recovery is expected to begin in 2013.

Although the situation in Spain initially appears more stable, the market remains very much in difficulty. Sales in the first quarter were around 45% below the average levels in the five years prior to the start of the financial crisis. This reflects the fact that the country's economy is now thought to have fallen into a prolonged and painful recession that will stretch throughout 2012. Although the government has now put in place less punishing targets to reduce its budget deficit, anti-austerity strikes are expected to become more frequent this year as public services become impacted by cuts. There are also continuing fears with regards the employment levels in the country, unemployment anticipated to rise to 24.1% this year in line with some dismantling of existing employment protection legislation, combined with smaller wage gains. IHS Automotive forecasts that Spanish passenger car sales will retreat again slightly this year even without the influence of a high base of comparison to contend with, and falling below the 800,000-unit mark, down by around half from pre-crisis levels, with an extremely slow recovery set to follow.

For the overall Western European market, IHS Automotive is currently predicting a full year sales forecast which declines by 7.8% y/y to 12.8 million units, which is almost directly in line with the fall that was recorded after the first quarter of the year.