France, Italy and Spain All Benefit from Government-Backed Scrappage Schemes in 2009

As 2009 has come to a close, the French, Italian and Spanish passenger car markets have seen varying degrees of benefit over the past 12 months from scrappage schemes implemented by the country's governments, while the final months have also been helped by the extremely low base comparison.

France

The passenger car market in France has recorded its highest sales during the year since 1990, with demand surging during December as customers sought to capitalise on the final month of the full scrappage incentive of 1,000 euro (US$1,435) and the low baseline. According to data released by the CCFA, passenger car sales during the month surged by 48.6% year-on-year (y/y) to 228,451 units, and unsurprisingly it was local automakers which reaped the most benefit from the rush. Renault saw one of the largest gains as its sales increased by 94% y/y to 51,974 units, while Peugeot increased by 50% y/y to 37,822 units, while Citroën sales grew a relatively disappointing 19% y/y to 27,143 units. For the year itself, the country's market increased by 10.7% y/y despite the difficult economic conditions, with total sales ending at 2.27 million units, around 40,000 units behind a previous record set in 1990. Again, it was the French brands that benefited, with growth at Renault and Citroën being above the market rate.

Italy

Italian passenger car sales in 2009 almost matched those seen in 2008 according to data published by the country's Ministry for Transport and Infrastructure. Demand fell just 0.2% y/y to 2.16 million units during the year, as demand in December increased by 16.7% y/y to 165,428 units. Local automaker, the Fiat Group, saw its sales rise by 2.7% y/y during the year, as it took a market share of 32.8%, with both the Fiat brand and Lancia being growth areas. However, similar to the effect that has been seen in other countries, smaller automakers in the market have been capitalising on the 1,500 euro on offer to customers scrapping an older vehicle, with South Korea's Hyundai Group seeing sales rise by over 90% y/y during the past 12 months. Ford has also seen its sales jump by almost a quarter over the same timeframe, thanks to the popularity of the B-segment Fiesta.

Spain

Spain, which has been by far the worst affected of the three European markets, has also clawed back some of the losses seen earlier this year as a result of the country's own scrapping scheme to incentivise customers to buy lower exhaust emission vehicles. According to the local collator of market data, ANFAC, the passenger car market tumbled by 17.9% y/y during the year to 952,772 units, and while better than the 50% declines seen earlier in the year, benefits from the low base effect towards the end of 2008. However, ANFAC said in a statement that the Plan 2000E put in place by the Spanish government, regional administrations, automakers and importers boosted demand and "salvaged a year that was turning out very badly," estimating that an extra 125,000 sales had been made as a result. It also revealed that the plan, which was extended during the final months of the year (see Spain: 26 October 2009: Spanish Government Extends Scrappage Scheme), had seen a gain in the number of vehicles eligible to benefit from the scheme rise by 4.7% y/y to 658,627 units. These vehicles were one of the drivers of passenger car sales levels in December rising by 25.1% y/y to 90,553 units.

Outlook and Implications

The scrappage schemes in these countries seem to have proved their worth, arresting the originally expected declines as a result of the global economic turmoil, and attracting those who may not have originally planned to replace vehicles to the market in place of typical customers. However, despite the positive effect of this, 2010 could well prove to be an even more difficult year as a result. The French government is already taking steps to wean the market off the 1,000-euro subsidy, by reducing it to 700 euro from 1 January, before dropping it again to 500 euro in July, but at this level it is unlikely that there will be as many customers attracted to this, particularly as many will have pulled forward acquisitions to get the larger slice. Renault has already announced that it will be topping up this with 300 euro of its own, to bring in those that may have missed out (see France: 4 January 2010: Renault to Offer Top-Up of Revised French Scrappage Scheme Until February), but despite this initial boost its Sales Director for the country, Bernard Cambier, has said that the second half of 2010 would be more difficult as it whittled down its current order book. Similarly, PSA Peugeot-Citroën executive Christophe Bergerand has told Dow Jones International News that it is expecting total passenger car sales in France to fall to around 2 million units, a decline of around 12% y/y, and below the current market average for that past decade.

Italy could also find itself similarly affected as it continues to be hit by economic woes such as unemployment, and there remains some doubt whether the current scheme will be extended or will be put in place at reduced rate (see Italy: 24 December 2009: Further Vehicle Market Support Measures in Italy to Depend on EU Partners). However, Italian trade association UNRAE has said that the country's passenger car market could fall as much as 16% year-on-year (y/y) in 2010 if incentives are scrapped, something which could directly affect Fiat's aim to support the government's wishes to increase vehicle production in the country (see Italy: 23 December 2009: Fiat Agrees to Boost Domestic Car Production to over 1 mil. Units; Targets Closure of Termini Imerese Plant). Spain also continues to suffer the affects of its own economic slowdown, but with the government having indicated that it would extend support measures in to 2010, this and the low base effect should at least help matters before the country raises value-added tax (VAT) in July from 16% to 18%.

Looking forward, with the mainstay of the market support having largely passed, IHS Global Insight is expecting that sales in the French passenger car will fall by over 10% y/y to the just over 2-million-unit level anticipated by PSA. We also expect that the Italian market will see some payback for the benefits that it has already seen in 2009, with sales of passenger cars retreating by around 6.5% y/y to a little over 2 million units. However, we anticipate a small improvement being seen in Spain as the market stabilises, with sales increasing by around 2% y/y, but this is still well behind the more than 1.6 million units sold as little as three years ago, and we expect that it will take at least a couple of years before it returns to levels of more than 1 million units.