Western European Car Sales Slip 8.3% Y/Y in August—Forecast

The Western European passenger car market has suffered another significant month decline during August with a decline of 8.3% year-on-year (y/y) to 668,057 units, according to IHS Automotive's latest forecast. This follows a similarly marked fall of 7.7% in July and represents a significant acceleration on the fall of 1.8% y/y recorded in June. However, it should also be noted that August is traditionally the quietest month of the year in the European market as a result of the summer holiday season, and as such it is not the best overall indicator in terms of the short-term development of the market. That said the figures for the month are hardly positive and contributed to a an accelerated year-to-date (YTD) fall in the region's sales numbers for the first two third of the year of 7.2% y/y to 8,066,783 units. The overall final trend cycle SAAR rate fell yet again in July to yet another record low of 11,760 million units, which means it remains significantly lower than the depth of the financial crisis in 2008.

In terms of the major European markets, the German passenger car market suffered its second consecutive drop in sales volumes in August as it experienced a 4.7% y/y decline to 226,455 units. This followed the 5.0% decline that was recorded in July and dragged the YTD cumulative sales total for the market further into negative territory, with sales falling by 0.6% y/y in the first seven months of the year to 2,108,716 units.

The French market continued its downward trend in August with demand during the month falling by 11.4% y/y to 96,115 units, with no adjustment to the number of selling days compared with August 2011. The declines this month have resulted in a further negative contribution to the YTD, and during this eight-month period registrations were down by 13.4% y/y at 1,294,021 units.

UK passenger car sales have flattened during the traditionally slow month of August, when many customers are awaiting the age-related number plate change in September. Sales increased by just 0.1% y/y to 59,433 units. As a result of the gains seen earlier in the market earlier in the year, registrations in the YTD now stand at 1,260,997 units, an increase of 3.3% y/y.

In Italy the passenger car market has once again seen significant declines in demand as customers stop buying new vehicles in response to the difficulties in the economy. Sales during August fell by the accelerated rate of 20.2% y/y to 56,447 units. This has added to the declines seen already this year, and has resulted in YTD sales of 981,030 units, down some 19.9% y/y.

Passenger car demand in Spain saw a fillip during August as customers sought to beat the impending increase in value-added tax (VAT) from 18% to 21% in September. As a result sales grew by 3.4% y/y to 48,820 units. This has marginally helped its contracting YTD figure that now stands at 520,216 units, a decline of 8.5% y/y.

Outlook and Implications

It should be reiterated that August is the least influential month on the overall annual sales picture because of the low sales volumes resulting from the holiday period. It is also possible that in a period of weak buying sentiment and low consumer confidence, those private consumers considering making a car purchase are more likely to defer making a decision until after the summer holidays. However, it should also be noted that a 8.3% y/y fall is not insignificant and has led to a further deterioration in the SAAR rate. For the second month in a row the German passenger car market has recorded a mid-single-digit decline with German consumers seemingly more interested in spending their summer holidays on the beach than in car showrooms. The ongoing deterioration of leading indicators since the start of the second quarter indicate that GDP growth may be negative in the third quarter and generally close to stagnation during the remainder of 2012. Notwithstanding supportive factors such as a persistently robust domestic labour market, receding inflation pressure, rock-bottom interest rates, and weakening of the euro, the dampening effect of worries about economic ramifications of the Eurozone debt crisis is taking its toll. However, for the full year in 2012 IHS Automotive is still forecasting a relatively soft-landing with sales declining by 1.3% y/y to 3.13 million units.

In France, the decline underlines the lacklustre demand the country has been facing. This is despite the market having passed a high base of comparison period in the first quarter as a result of the end of earlier incentives. It cannot be helped by economic issues, which although not as bad as those in some other Eurozone markets, are still causing a drag. French GDP stagnated for the third successive quarter during the second quarter of 2012, and short-term indicators suggest that the economy entered the third quarter with a worrying lack of momentum. For now, IHS Automotive anticipates that sales will decline by around 11% y/y this year, to around 1.96 million units, taking it below the pre-crisis annual average of around 2 million units. However, a further decline is expected in 2013 to 1.86 million units before some improvement is seen the following year. August is generally a sluggish month for the UK market as many customers await the change in age-related number plate in September, in this case to 62. Nevertheless, more private customers than last year have taken a leap into the market place, no doubt encouraged by the competitive incentives by dealers to shift vehicles. However, events in the Eurozone are also weighing down on the UK economy and pose serious downside risks to the outlook. While September data will give a better indication as to the health of the market, demand levels are expected to continue to remain well below pre-crisis levels. IHS Automotive expects sales to hold firm in the full year compared to 2011 at 1.94 million units, rising to 1.96 million units in 2013 before finally returning over the 2 million unit mark in 2014.

Demand in the Italian market continues to be heavily influenced by the contracting economy, which has been the primary cause of the ongoing 20% y/y monthly declines. One of the biggest problems for demand 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. This is making for dismal levels of confidence. At the moment, IHS Automotive expects the Italian passenger car market to slip to 1.46 million units in 2012, another 18.3% y/y decline and taking it well below the 2.3-million average registered between 2003 and 2007. We also anticipate that the market will not show much semblance of a recovery until 2014, and even then it will take some time for the market to finally return to over 2 million units. Although the situation in the Spanish passenger car market appears more buoyant at first glance, particularly in light of the growth in August, demand levels remain well behind the pace seen in the middle part of the last decade. As noted above, the gains this month have been brought about by consumers who can afford to pull forward acquisitions before 1 September, and many of these sales have also been incentivised by automakers hoping to take advantage of the upswing in interest. However, this is expected to result in a significant lull in September. Spain was the fourth country in the EU to request assistance after 10-year bond yields have risen aggressively and rating agency Fitch downgraded its long-term sovereign debt. These issues mean that IHS Automotive anticipates that Spanish passenger car sales will retreat even without the influence of a high base of comparison to contend with. We now expect that the market will reach just 691,299 units this year, well below half the pre-crisis level, with an extremely slow recovery set to follow.