European Car Sales Rise 12.9% in January According to ACEA Data; Low Base Comparison a Strong Factor

The European passenger car market seemingly posted a robust return to growth in January, with the combined European market posting a 12.9% year-on-year (y/y) increase in sales to 1.059 million units, according to the latest set of data released by the European Automobile Manufacturers Association (ACEA). In its statement the European automotive trade body attributed the increase to the ongoing effects of scrappage schemes across Europe which had a marked effect on the market throughout 2009. However, by far the biggest and most successful scrappage scheme in Germany saw its 5-billion-euro funding run out in September last year and this pattern will be repeated across most European markets going into 2010, as funding allocations are exhausted or the schemes reach the end of their terms. In addition, perhaps the largest contributor to the double-digit growth figure recorded in January 2010 was the low base comparison recorded in January 2009 which was before most of the scrappage schemes were introduced and business and consumer confidence, as well as credit availability, was at a particularly low ebb across the continent.

In terms of individual market data, the various stages of the implementation of the scrappage schemes by individual governments greatly influenced the performance of the individual markets. This was illustrated by the performance of Europe's biggest market Germany, which saw a 4.3 % y/y decline during the month, although it was the only major Western European country to register a decline as a result of the aforementioned exhaustion of the country's scrappage scheme fund. However, France (14.3%), Spain (18.1%) the United Kingdom (29.8%) and Italy (30.2%) all enjoyed robust volume growth thanks to their ongoing scrappage schemes. However, it should be remembered that these markets, in particularly the United Kingdom and Spain were recovering from particularly low bases, given the gloom that surrounded their respective economies 12 months ago, as a result of the collapse in the housing market which was an economic growth driver in both these countries during the boom years of the previous decade. There were some big variations in the Eastern European markets, with the Czech Republic posting a 22.3% y/y rise, while the biggest Eastern European market Poland posting a 4.9% y/y decline. However, worst hit in this region was the Romanian market, which recorded a massive 84.6% y/y decline during the year.

On a manufacturer by manufacturer basis, Europe's largest volume carmaker Volkswagen (VW) posted more moderate sales increases in Europe during January, despite announcing an enormous gain in its worldwide sales during the month yesterday (see World: 15 February 2010: VW Group Posts Massive 41.3% Rise in Global Sales During January, Aided by Low Base Comparison) The company's combined group sales rose by 11.3% to 217,027 units although the VW brand itself outperformed the wider group as a result of strong ongoing demand for the new Polo and the Golf. Of the major OEMs operating in Europe it was third-placed Renault which recorded the biggest gain in January, with sales rising by 59.5% y/y to 114,373 units as the company benefited from the full roll-out of the new Mégane range and ongoing demand for its small car range. General Motors (GM) may be slightly disappointed with its January performance. It was sixth overall in the vehicle group sales chart, with sales rising by just 2.4% y/y, and thus substantially underperforming the overall market, despite the roll-out of the all-new Astra, which is its best-selling model. Saab's new owner-in-waiting, Spyker, may also be somewhat alarmed that the company sold only 796 units Europe-wide in January.

Outlook and Implications

Although a headline figure of double-digit growth may appear to be positive news for the European passenger car market in January, there are some rough waters ahead for the region's market as we progress into 2010. Although the overall sales volume increase of 12.9% should be considered in the context of there also being one fewer working day on average across the EU than there was in January 2009, it also needs to be noted that January 2010's sales actually represented a 17.3% y/y decline on January 2008 and that January 2010's outright sales volume was, if January 2009 is excluded, the lowest outright sales figure recorded across the market for some time, with sales consistently at or above the 1.2-million-unit level across Europe in January since 2003.

The overall picture across the European market for the rest of 2010 is far from buoyant. The VW Group yesterday maintained that the market outlook for the rest of the year was far from positive despite the company's healthy sales volume boost in January, while PSA Peugeot-Citroën and Renault last week also warned of a tough year ahead as they posted full-year results which showed widening losses. And this, it should be remembered, is for the year when the scrappage schemes were in full flow in operation across Europe, which of course Renault and PSA are heavily dependent on. In addition Fiat chief executive Sergio Marchionne last week responded to news that Italy would focus incentives on boosting consumer demand in other industry sectors apart from cars by predicting that carmakers would sell 350,000 fewer cars in Italy this year. So while individual markets may still be being propped up by the ongoing effect of scrappage schemes, this momentum will not last throughout the year. The market will begin to suffer against scrappage-scheme-boosted base comparisons with last year.

As a result, IHS Global Insight is forecasting around an 8.2% y/y decline in sales for the full year across the combined European passenger car market to around 15 million units as the market struggles to cope with the gradual withdrawal of scrappage and the generally uncertain economic outlook throughout many of the continent's largest economies.