Italian Passenger Car Market Hit by Strikes During March, Spain Remains Flaccid

The Italian passenger car market witnessed a torrid month in March, as the well-documented economic problems in the country were compounded by a strike which hindered vehicle supplies, according to the latest data published by trade association ANFIA. Sales during the month fell by 26.7% year-on-year (y/y) to 138,137 units. This built on the decline in the first two months of the year, and the year-to-date (YTD) figure now stands at 406,907 units, a fall of 21.0% y/y. The key automaker in the country is the domestic Fiat Group Automobiles (FGA), which comprises the Fiat, Alfa Romeo, Lancia, and Jeep brands, and its importance combined with its inability to ship vehicles from its plants as a result of the strike by vehicle transporter drivers meant it saw some of the largest declines. Its group sales fell by 35.6% y/y to 35,942 units, which also meant its market share slipped from 29.6% in March 2011 to 26%. The core Fiat brand drove this rate of decline thanks to its sheer volume of sales, falling by 36.1% y/y to 24,900 units. However, the Lancia (-29.5% y/y to 6,490 units) and Alfa Romeo (-45.6% y/y to 3,889 units) brands fared little better. In the rest of the market, Volkswagen (VW) remained the second best-selling brand in the country behind Fiat, despite its sales dipping 22.8% y/y to 12,353 units, and the Ford brand consolidated its third place as its sales decline outpaced the market average, coming in at 38.6% y/y to 10,924 units. Nevertheless, there were some automakers which were able to take advantage of the gloom and the restricted vehicle supply, and notably this included Hyundai and Kia, which both saw improvements this month of 11.5% y/y to 4,639 units and 26.9% y/y to 2,343 units, respectively.

Spain

Demand for passenger cars in Spain has been largely lacklustre, and March has seen a continuation of this trend, according to data published by trade association ANFAC. During the month, passenger car sales in the country slid by 4.5% y/y to 84,427 units, contributing to a tally for the first quarter which now stands at 204,119 units, down 1.9% y/y. During the month, the VW brand remained in top spot with sales of 8,314 units, up 15.2% y/y, with Ford and SEAT following. Peugeot's poor performance this month has seen it pushed down the pack in the YTD to be replaced by VW.

Outlook and Implications

Although this is Italy's worst decline so far and leaves the market at a level around that last seen in March 1980, for many this is better than had been expected, given the anticipated impact from the strike action. Vehicles supply to dealers was very difficult for over a month until it was brought to an end on 28 May, and the fallout from this has been more limited than expected. FGA, though, was one of the biggest casualties of the strike action; its plants were brought to a halt entirely for a period temporarily during this time, as it was unable to ship vehicles locally and to the rest of Europe (see Italy: 26 March 2012: Fiat Italian Plants to Stop Again on Truck Driver Strike Action). This is perhaps one of the reasons why the automakers chief executive officer (CEO) Sergio Marchionne expected demand to be down during this month by up to 40% y/y (see Italy: 2 April 2012: Fiat CEO Expects Italian Vehicle Sales During March to Show "Horrible Month"). Factors which are thought to have helped include a strong push to sell from stock, a stronger than usual last three days of the month (and quarter), the flow of self-registrations, as well as not all brands having been affected equally. On top of this, Fiat is still implementing local stoppages driven by its poor market performance across Europe from its ageing line-up, with arguably the only major detrimental effects of the strike action being to production of its new Panda at Pomigliano d'Arco. IHS Automotive believes that despite a higher level of self-registrations during March, which will fall during the next couple of months, around 10,000 additional units should be delivered in April as part of the correction process.

Nevertheless, the economic situation continues to have a massive influence over the Italian market. One of the major problems is a dormant household economy, with nervous consumers continuing to refrain from non-essential spending, and the near-term outlook for household spending is poor at best, with consumers struggling to cope with uneven real income developments, deeper fiscal austerity, and an unpopular structural reform drive. Poor economic data and contagion from the Eurozone debt crisis point to a painful and prolonged recession in Italy, with real GDP projected to contract by 1.6% in 2012, according to IHS Global Insight's most recent forecast, although there is also a significant threat of a recession with a long tail. As a result, IHS Automotive expects the Italian passenger car market to slip to 1.56 million units in 2012, another 12.6% y/y decline and taking it well below the 2.3-million average registered between 2003 and 2007. We also believe that it will be several years before the market comes close to its pre-crisis levels, although a modest recovery is expected to begin in 2013.

Although the situation in Spain initially appears more stable, the market remains very much in difficulty. Sales in the first quarter were around 45% below the average levels seen in the five years prior to the start of the financial crisis. This reflects the fact that the country's economy is now thought to have fallen into a prolonged and painful recession that will stretch throughout 2012. Although the government has now put in place less punishing targets to reduce its budget deficit, anti-austerity strikes are expected to become more frequent this year as public services become impacted by cuts. There are also continuing fears with regards the employment levels in the country, unemployment anticipated to rise to 24.1% this year in line with some dismantling of existing employment protection legislation, combined with smaller wage gains. IHS Automotive forecasts that Spanish passenger car sales will retreat again slightly this year even without the influence of a high base of comparison to contend with, and falling below the 800,000-unit mark, down by around half from pre-crisis levels, with an extremely slow recovery set to follow.