Western European Car Sales Rise 5% Y/Y in February—Forecast

Passenger car sales in the Western European market grew by 5% in January as four of the top five major European markets posted gains in sales volume. However, the improvement was much smaller than the 16% rise recorded in January as a result of the base comparison coming against the scrappage scheme boosted figures that were recorded in Europe's biggest vehicle market, Germany, in February last year. Car sales hit a figure of 946,000 units according to IHS Global Insight's forecasts. February's data continued to represent something of a stabilisation in the Seasonally Adjusted Annualised Running Rate (SAAR) which came in at 13.4 million, with the SAAR for February last year was 12.8 million units. Furthermore, the residual effect of the incentives operating in many markets is still being felt, with some schemes either still running or altered and winding down.

On a market-by-market basis, Germany as usual dominated proceedings in terms of the being the biggest market in the region. But the extraordinary successful German scrapping scheme which was introduced in February last year will create some extraordinarily high monthly base effects for the rest of the year. February was the first sales month to suffer from this comparison, Europe's biggest single passenger car market posted a decline of 30% y/y to 194,846 units. The 5-billion-euro (US$6.96-billion) scrappage scheme announced in the middle of January 2009 was introduced in February last year and went on to have a dramatic stimulus on the German market, with 2 million new passenger car purchases benefiting from the scheme before it was exhausted in the early weeks of September. However, with any outstanding orders left over from the scheme now having been completely fulfilled, the German market is now having to make do without any further stimulus measures. It will continue to suffer over the next few months compared with the huge growth in sales in the months immediately following the implementation of the scheme. In addition, there has been a significant pull-forward effect on sales, with purchases being brought forward by the scrappage scheme, which will also undermine the sales environment in Germany in 2010.

In February, French passenger car registrations increased by 17.8% year-on-year (y/y), despite the government having reduced the scrappage incentive on offer but helped by the relatively low base comparison with last year. According to data released by the CCFA, the number of vehicles in this category sold during the month was 179,926 units, taking the year-to-date (YTD) total so far to 351,404 units, an increase of 19% y/y.

While it was finally confirmed that the Italian government would not be extending incentives in its passenger car market again during 2010, the market continued to see positive gains during February. The number of registrations recorded was up 20.6% y/y to 200,560 units, and this has taken sales in the market during the first two months of the year to 407,580 units, an increase of 25.5% y/y.

The continuation of the scrapping incentive and the extremely low base comparison from February 2009 have helped the Spanish market to continue to register substantial positive gains this month. Sales of passenger cars have increased by 47.1% y/y to 91,281 units. This has enabled its YTD sales to reach 161,411 units so far, an increase of 32.9% y/y.

In the United Kingdom the market increased by 26.4% to 68,686 units as a result of private buyers entering the market to take advantage of the U.K. government's scrappage scheme, although there was also a reported uplift in demand by business users.

Outlook and Implications

As we observed during last month's analysis of the Western European SAAR forecast the percentage annual increases, expected to continue against the low base of comparison months of early 2009, mask a marketplace where the individual fortunes of the separate countries and their economies are likely to begin to be more relevant in 2010.

For example, a market like Spain will benefit from very low base comparisons with the early months of 2009, with the market suffering particularly as a result of the macroeconomic problems that it suffered in particular during the period such as the collapse of the property market. However, the Spanish government has kept its scrapping scheme measures in place until the middle of this year, which is likely to see continued market growth during the period. In France the market is still benefiting from scrapping measures, albeit at a reduced rate as a result of the French government's decision to reduce the incentive from 1,000 euro to 700 euro from 1 January. Given that there is likely to have been some carryover in registrations as orders are completed, we are unlikely to see the full extent of this downgrade until the second quarter. The same is also true of the Italian market, which is now in limbo as a result of its scheme coming to an end on 31 December 2009, and the government yet to decide on the future of its replacement. According to reports, there has been a huge carryover in the number of orders, with as many as 350,000 having been made in the final month of last year which still have to be completed. Again, this could also spill over into the following couple of months.

Unlike, in Spain, Italy and France, the party is well and truly over in Europe's biggest passenger car market Germany. There was an inevitable pull-forward effect on sales as a result of the 5-billion-euro scrappage scheme which was introduced in February last year and which contributed to the purchase of a remarkable 2 million units. The fact that the German passenger car market recorded an accelerated decline in sales volume during February is a prelude to the year ahead, with February's sales performance one of the worst on record since the fall of Communism.