EU Passenger Car Sales Fall 8.7% in May, According to ACEA

There was a significant decline in passenger car sales across the EU for the eighth consecutive month in May, with sales declining by 8.7% year-on-year (y/y) to 1,106,845 units, according to the latest data release from the European Automobile Manufacturers' Association (ACEA). The result was marginally less bad than the headline figure suggests as there was one less working day across the EU region on average in May 2012 in comparison to May 2011. This would put the actual like-for-like rate of decline at nearer 5% without the calendar effect, although this still represents a significant decline across the region. The year-to-date (YTD) rate of decline for the first five months of the year therefore accelerated slightly to 7.7% y/y with sales coming in at 5,442,326 units.

Looking at the performance of all the major markets European markets in May, the main trend that appears to be a decline in the massive spread of performance that was witnessed between Germany and the particularly poorly performing Southern European markets. For example after posting remarkable consistent moderate growth in the first four months of the year the German market posted a 4.8% y/y decline during May. The poor sales performance in May dragged down YTD sales as well. Overall sales volumes in the first five months of 2012 increased only 0.3% y/y to 1,337,679 units. That said, the French and Italian markets still posted accelerated falls of 16.2% y/y and 14.3% y/y. However, it should be pointed out that France's performance was very much influenced by the number of selling days on a basis which was exclusive to the market. Demand during the month fell by 16.1% y/y to 165,776 units. However, when taking into account the adjustment for the fewer selling days compared with May 2011—19 days compared to 22 days as a result of bank holidays—there was a decline of just 2.9% y/y. The Spanish market actually witnessed something of an acceleration of the recent declines, with sales falling by 8.2% y/y to 72,442 units, contributing to the tally for the YTD which now stands at 332,811 units, down some 7.3% y/y. Only the UK managed to post meaningful growth out of the big five European markets, with sales up 7.9% y/y to 162,288 units. YTD sales rose by 2.6% y/y to 868,166 units as the UK market showed a positive development on the back of an unexpected rise in demand from private buyers.

Few major OEMs involved in the European market escaped significant falls in their sales volumes during May. Even the Volkswagen (VW) Group which has managed to maintain largely neutral sales, largely because of the brand's ongoing strong performance in Germany, posted a significant decline. VW's sales across the region fell by 5.5% to 283,382 units during May, but this was nothing compared to the double-digit falls recorded by Renault, PSA and Opel, with the former posting the worst performance with a 19.4% y/y fall in during the month to 97,053 units, with the accelerated decline in the French market have a large negative impact. By way of contrast Toyota, Hyundai and Kia posted strong growth.

Outlook and Implications

The fact that even the previously resilient German passenger car market posted a decline in May, or at least stagnated after calendar effects are taken into account, shows that the effect of the Eurozone crisis cannot be underestimated; although it is also true that the fall in sales in Germany during May was also partially the result of a high base comparison as a result of the market's reasonably robust organic recovery since the financial crisis and the subsequent buying frenzy in the market that resulted from scrappage. However, May sales data suggests that Germany may finally be bowing to the external pressures despite the fundamental strength of its domestic economy. The European financial crisis has had a very real and tangible effect on an increasing number of markets in the region, especially those in Southern Europe, which have been particularly beleaguered by high levels of public debt and associated weakness in their banking systems, such as Spain, Italy and Portugal. These markets have been decimated by the erosion of buying power and confidence which has hit private consumers and it appears that the confidence issues may now be spreading and having a significant effect on more robust Northern European economies. Every day there is another calamitous headline about some economic measure and this has to have an effect on eroding overall confidence. Yesterday (14 June) German chancellor Angela Merkel said that there were limits to Germany's largesse and power to influence the Eurozone crisis by underwriting the debt of other sovereign nations, and yet the global markets, business leaders and European politicians see Germany as the only player with the power and financial muscle to come up with a lasting solution to the crisis. However, Merkel says this will not happen unless political leaders in weak economies embrace the full burden of austerity and confront the new economic reality head-on. This weekend will see the second Greek election in six weeks with the left-wing SYRIZA party leading in the polls. If SYRIZA wins it is likely to increase the likelihood of a Greek exit from the Eurozone and this will create a whole new level of economic uncertainty in Europe, as it will fundamentally call into question the future of the single European currency. It goes without saying that this will be hardly conducive to a recovery in the European automotive market in the short term.

Even if the situation with regards to confidence and fiscal stability improves, it will take a long time to turn around the current downward cycle in the passenger car market. This will continue to put huge pressure on mid-market European OEMs that rely heavily on the Western European markets to generate a significant proportion of their sales such as Renault, PSA, Opel and Fiat. The French OEMs in particular have openly called upon the French government to help with their plight. Ford has also revealed that it may need to look at ways to right-size production if this situation continues any longer. Nonetheless, without such efforts these businesses are likely to remain loss-making and raise doubts over their long-term stability. As things stand, IHS Automotive anticipates that passenger car demand in the EU will retreat by almost a further 900,000 units during 2012 to around 12.3 million units, a fall of 6.6% y/y. This would also be significantly down on average sales recorded in the pre-crisis period of between 2003 and 2007, when around 15.3 million units were sold.