European Passenger Car Sales Rise 3.0% Y/Y in February, According to ACEA

The European passenger car market's growth rate is starting to slip, according to data for February released by the European Automobile Manufacturers Association (ACEA). The trade association has released sales data for the European Union (EU) showing a rise of just 3.0% year-on-year (y/y) to 974,346 units, taking the year-to-date (YTD) total to 2.03 million units, up 7.9% y/y. Including European markets not covered by the EU, sales just exceeded the 1-million-unit market, posting a gain of 3.2% y/y, while sales in the YTD increased by 8.1% y/y to 2.09 million units.

In terms of individual market data, the various scrappage schemes introduced by individual governments have greatly influenced the performances of the different markets within Europe. This is illustrated by the performance of Europe's biggest market, Germany, which posted a substantial 29.8% y/y decline during February; it was the only major Western European country to register a decline, resulting from the exhaustion of the country's scrappage scheme fund. France, the United Kingdom, and Spain all witnessed double-digit percentage gains during the month as their own schemes continued in some form or another. On the other hand, Italy, which withdrew its scheme at the end of 2009, also continued to exhibit double-digit growth in February, although this was mainly due to the extremely low base of comparison and lingering effects from the scrappage scheme, with orders still being fulfilled. There were still some big variations in the Eastern European markets. The Czech Republic posted a 12.8% y/y rise, whereas the biggest market in the region, Poland, suffered a 19.2% y/y decline. However, worst hit in this region were the Romanian and Hungarian markets, which recorded declines of 63.0% y/y and 57.9% y/y, respectively.

The strong declines now being seen in the German market pushed the Volkswagen (VW) Group into deficit during February as its sales slipped by 1.7% y/y. All of the automaker's brands recorded declines during the month, except for SEAT, which reported a gain by virtue of its largest market being Spain. Sales of other major European automakers were largely supported by the continuing effects of the scrappage schemes. Among them, French automakers the Renault Group and PSA Peugeot-Citroën saw increases of 30% y/y and 18.4% y/y, helped by the neighbouring Spanish market, where both companies have a strong presence, while the Fiat Group continued to capitalise on earlier incentives in Italy, lifting its overall sales in the region by 5.1% y/y. However, U.S.-based automakers Ford and General Motors (GM) had contrasting months, with the former seeing a gain of 5.0% y/y and the latter slipping by 7.4% y/y.

Outlook and Implications

Although the continued growth in European sales may appear positive, this should be viewed in a wider context. For a start, the rate of growth in the market is waning quite markedly now, with the main drag coming from Germany, where the successful scrappage scheme began to take effect around this time last year. This will continue to have a dampening effect on sales in this market as the high base of comparison will become even more evident in the second quarter. Added to this will be the withdrawal of other scrappage schemes in the region. The Italian scheme has already expired, and although orders are still being fulfilled following its termination in December 2009, the rate of orders during the first couple of months of 2010 was down substantially, and this will also have an impact soon. On top of this, the U.K. scheme is set to expire at the end of March, and although some carry-over effects will be seen during the next couple of months, this is unlikely to last long. The French government has taken a different approach to many by phasing out funding in gradual steps, which should have a less marked effect on the market, although this will still begin to hit sales in the second half of the year. Spain, which has been the hardest hit by the downturn in demand, has extended its scrappage scheme into 2010, but the effect of this may ultimately be tempered in the middle of the year by an increase in value-added tax (VAT). Even at the current growth rate, sales in the EU are still well below the levels seen before the economic crisis in 2008, with demand having fallen by 17.9% y/y during February 2009. The February market was still behind the average for the month in the five years before 2009, when it easily exceeded 1 million units.

With this in mind, the overall outlook across the European market for the rest of 2010 is far from buoyant. Although many automakers are aiming to snatch market share, there is still a consensus across the industry that Europe will see far larger declines than in 2009's incentive-led environment. IHS Global Insight agrees with this and forecasts that passenger car sales in the EU will tumble by around 11% y/y to approximately 12.6 million units during 2010. However, the actual decline is far greater when it is remembered that sales reached a peak of 15.6 million units just three years ago. However, the market should begin to crawl back up over the next few years, although it will be five years before it will be close to returning to its previous levels.