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Same-Day Analysis
Western European Car Sales Rise for First Time in a Year—Forecast
Published: 7/3/2009
IHS Global Insight Perspective | |
Significance | Western European car sales rose approximately 3% in June year-on-year (y/y) as scrapping incentives active across the region boosted consumer demand, giving the region its first statistical rise in over a year. |
Implications | Although a welcome relief the beleaguered industry, the pace of increase in Germany particularly has worrying implications for the market come the inevitable end of the schemes. |
Outlook | Although it is far from a case of "green shoots of recovery", the boost to the industry allows some room to manoeuvre and will provide welcome relief to some companies' balance sheets. However, the sharp percentage rate falls seen in Western European car sales will inevitably start to flatten out against the lower base comparison months of 2008 and now the implications for the market of the end of these various schemes must be calculated. |
Western European car sales rose by around 3% in June year-on-year (y/y) to approximately 1.36 million vehicles according to IHS Global Insight forecast data. The rise is the first in the collective market since April 2008, when the market rose 10% in that month. June 2009 benefited from one extra working day over 2008, worth around 4.5%, but the rise will nevertheless be welcomed across the region by carmakers, distributors and all the many affiliated industries who have been suffering badly in recent months. June's rise means the market at the half-year stage is now down just 10%, still some 800,000 units adrift of last year, but a positive improvement from the first quarter when sales were off by 16%.
Germany was again the outstanding performer, rising a staggering 40% y/y again in the month to 427,000 units, accounting for nearly a third of the market in the month. Germany's car market is now 26% higher over the first-half period at 2.05 million units, accounting for 26% of the entire market, as opposed to around 20% in a normal year. However, the pace of sales and the scale of market share increase leaves the overall market overexposed to the inevitable aftermath of the "pull-forward" effect.
The situation was highlighted yesterday as France reported a 7% y/y rise in car sales, again boosted by government sponsored incentives (see Europe: 2 July 2009: Incentives Lift Car Sales in France and Italy; Spain's Decline Slows in June Y/Y). Xavier Fels, president of the French industry group CCFA highlighted the concerns rising across the region, as the boost to demand the schemes are causing does cast a shadow over the future and the inevitable pull-forward effect the incentives will have, followed by the likely drop once they finish. "We're still a long way from the end of the year [when the scheme is due to end]," said Fels, "and everyone is conscious of [the issue]. We're sending the authorities a message of caution and it's up to them to decide the best way to play it." France and Germany are perhaps in a better place than most in terms of their national finances and may be able to support the market further if the political will is there.
Public finances in the other big markets of the United Kingdom (expected in the range of -15% to -18%) Italy (+12%) and Spain (-16%) are not in such good shape. Spain launched one of the world's largest fiscal stimulus packages into its ailing economy and is set to push up the ratio of public debt to GDP to a staggering 60% by the end of 2010. Neither Spain, nor the heavily indebted United Kingdom and Italy, will be in a place to bolster the market further.
Outlook and Implications
Although it is too early to call the first rise in the car market the "green shoots of recovery," nevertheless, the boost to the industry allows some room to manoeuvre and will provide welcome relief to some companies' balance sheets. Sadly the longer-term view is rather short on optimism as the very thing that is stimulating the demand side is temporary incentives, all scheduled to draw to a close either the end of this year, or the beginning of next.
Furthermore, although June will show a small percentage rate rise, when compared on a like-for-like basis, June sales were actually down around 1.5% due to the effect of one extra working day in the month (22 versus 21) this year. Furthermore, the sharp percentage rate falls seen in West European car sales will inevitably start to flatten out against the lower base comparison months of 2008, and it is more reliable to look at averages over the last four/five years or more to gauge the true scale of the impact of the economic recession on the vehicle market. Indeed, the average June car sales total for the four years 2004-07 leading up to June 2008 (which was down -8% on June 2007) was 1.443 million units, nearly 100,000 units higher than the positive June 2009 total. The first-half average for Western European car sales for the same years is 7.915 million units, a million units higher than the current half-year total, or equivalent to a decent sized carmaker.
In addition to this is the dire state of the commercial vehicle markets across the region, which in some of the harder hit countries such as the United Kingdom and Spain, are off some 50% compared to last year. This gives a clear indication of the state of business in the region and the spectre of large-scale unemployment is also growing across the continent. The implications for the market of the end of these various schemes must be calculated. The best-case scenario involves the potential for the schemes to bring new buyers to market, those that would have otherwise bought used vehicles, thus temporarily swelling the pool of customers and lessening the pull-forward effect of the incentives. Should this combine with the beginnings of a recovery in the traditional fleet, business and private buyers in 2010, as is possible, then the schemes will have achieved a remarkable coup of boosting the market temporarily by dragging new buyers into it, without the negative post-incentive impact. However, whilst there is some anecdotal evidence to support this theory, the likelihood remains that the prolonged and deep nature of the recession will see the schemes end when unemployment is peaking and national finances are at their worst. Add the increasing likelihood of strong inflationary forces and the chances of an early end to the market malaise seem remote.Most Viewed Articles
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