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Western European car sales fall 6.4% y/y in June, SAAR rises for first time in over two years – forecast

Published: 7/5/2013
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Western European passenger car sales continued to slide in June, but the seasonal anomalies mask a more positive story, with the long-awaited bottoming out of the market seemingly finally around the corner.



IHS Automotive perspective

 

Significance

One less working day compared with the same month last year and a high base of comparison in some markets made June's Western European passenger car sales appear worse than they actually were and we may be witnessing the long-awaited bottoming out of the market.

Implications

Improving consumer confidence and purchasing managers' indices point to a levelling out of the brutal fall in the market, resulting in the first improvement in the seasonally adjusted annualised run rate (SAAR) since February 2011.

Outlook

Although we may be witnessing the bottoming out of the market, the sheer scale and length of the decline has left some industry players on their knees, and with a slow recovery forecast there is an increasing likelihood of some major restructurings in the European auto manufacturing sector.

Western European passenger car sales fell 6.4% year-on-year (y/y) in June, according to IHS Automotive's latest forecasts. However, given that there was one less working day in the month compared with June 2012 and since there was an unusually high base of comparison in some markets due to emissions legislation that came into effect last year, the picture is actually brighter than the figures suggest. Indeed, the seasonally adjusted annualised run rate (SAAR; see chart below) for the Western European market saw its first improvement since February 2011, indicating that the market may have bottomed out at long last. Further evidence from some consumer confidence and purchasing managers' indices (PMIs) also suggests some improvement in sentiment. Nevertheless, the sheer scale and length of the decline has left some industry players on their knees, and with a slow recovery forecast there is an increasing likelihood of some major restructurings in the European auto manufacturing sector. At the half-year stage the market has lost a further 440,000 units y/y, and that is compared against the very low base of comparison provided by the 2012 results.

Western European passenger car registrations

 

Jun 2013

Jun 2012

% change

YTD 2013

YTD 2012

% change

Austria

31,382

33,068

-5.1%

171,307

186,958

-8.4%

Belux*

47,608

52,586

-9.5%

316,541

313, 772

0.9%

Denmark

17,550

14,725

19.2%

91,959

84,296

9.1%

Finland

8,809

7,716

14.2%

56,527

66,895

-15.5%

France

190,199

208,909

-9.0%

930,144

1,048,982

-11.3%

Germany

282,913

296,722

-4.7%

1,502,63

1,634,401

-8.1%

Greece

5,388

5,527

-2.5%

30,105

32,431

-7.2%

Ireland

1,661

6,338

-73.8%

53,337

66,262

-19.5%

Italy*

122,008

129,597

-5.9%

730,403

818,846

-10.8%

Netherlands

35,285

76,128

-53.7%

210,133

331,437

-36.6%

Norway

10,948

11,053

-0.9%

70,644

69,355

1.9%

Portugal

12,706

10,804

17.6%

5,4 91

53,376

2.9%

Spain

72,766

73,259

-0.7%

386,338

406,071

-4.9%

Sweden

22,869

25,562

-10.5%

1,289

142,633

-9.6%

Switzerland

28,905

39,905

-27.6%

156,295

177,310

-11.9%

United Kingdom

214,597

189,514

13.2%

1,163,263

1,057,680

10.0%

Western Europe

1,105,594

1,181,413

-6.4%

6,053,436

6490.705

-6.7%

* Belgium and Luxembourg combined
* Italy 2012 figures revised

The German passenger car market posted something of a neutral sales result in June with a 4.7% y/y decline to 282,913 units. Working-day adjustments leave sales flat in the month. However, the picture for the year to date (YTD) is somewhat bleaker, with the market down 8.1% y/y for the first six months of the year to 1,502,630 units.

The UK passenger car market, which has long been the bright spot among the Western European "big five", posted its 16th consecutive month of y/y sales growth in June, recording an increase of 13.4% to 214,957 units. This was a particularly impressive figure given the working-day adjustment; the increase was in the region of 18% y/y when the calendar effect is taken into account. The growth was fuelled in particular by an increase in demand from private buyers – private sales in June rose by 21.3% y/y to 96,931 units. YTD registrations of new cars are up 17.1% y/y at 557,498 units.

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The French passenger car market posted yet further disappointing sales figures in June, recording a 9.0% y/y decline to 190,199 units. In working-day-adjusted terms, the actual rate of decline was 4.4% y/y. This was actually lower than the rate of decline for the first half of the year, with the CCFA industry association putting the YTD fall at 11.3% y/y, equating to sales of 930,320 units. According to the CCFA, there were 123 working days in the first half of 2013, compared with 125 during the first six months of 2012, resulting in a calendar-adjusted decline of 9.9% y/y to 930,320 units in the YTD.

The Italian market fell 5.5% y/y in June to 122,008 units. Adjusted for the number of working days, the actual decline was 1% y/y and this followed increases in advance orders in April and May. This was actually a meaningful moderation of the overall rate of decline in the first half of the year, during which Italian passenger car sales fell by 10.3% y/y to 731,203 units, down from last year's first-half tally of 815,213 units, which represented a low base level. Fiat Group sales fell by 15.2% y/y to 33,585 units during June, and it recorded an 11.5% y/y fall in the first half of the year.

In Spain the market fell by 0.7% y/y to 72,766 units. Taking into account calendar effects, the market actually grew by about 4%. The country's second round of scrappage incentives, the Plan PIVE 2 scheme, has at least prevented the market from recording more accelerated declines. The market has posted a 4.9% y/y fall to 386,353 units in the YTD.

Outlook and implications

The German passenger car market appears to be experiencing something of a marked slowdown, with lower levels of organic and pent-up demand in comparison with recent years. At the same time, despite the continuing relative robustness of the German economy, it appears that the ongoing distress in the rest of the Eurozone is having a negative impact on German consumer confidence. The German industry association, the VDA, has also just released data that appear to confirm a growing willingness of German consumers to retain their cars for longer periods. German drivers are more likely to keep up to date with maintenance schedules and invest more money in the maintenance of their vehicles than other European consumers and this is also likely to keep older vehicles serviceable and economically viable for a longer period. The advances in quality made by OEMs in recent years are also likely to be a factor in the longer replacement cycle. The average age of German passenger cars is now 8.7 years, a full year older than the figure in 2007 prior to the financial crisis, and a record high. "Germany naturally can't decouple itself from the crisis-laden environment" in Europe, VDA president Matthias Wissmann said at a press conference in Berlin. "There's evidently insecurity because of the ongoing euro crisis."

The economic environment and confidence levels are simply not supporting any kind of recovery in the French passenger car and light-vehicle markets. It may have been assumed that the low base levels from last year would have been enough to at least see some kind of bottoming out of the market in the first half of 2013, given that sales fell by 14.4% y/y in the first half of 2012 (see France: 2 July 2013: French passenger car demand flattens in June, down 0.9% y/y). The macroeconomic indicators in France continue to make grim reading, and the overall level of business and consumer confidence is low; the unprecedented unpopularity of the government is also not helping matters. The economy entered a recession during the first quarter of 2013, and short-term indicators suggest that output is likely to have contracted again during the second quarter. Moreover, although the government has refrained from introducing significant spending cuts as in other Eurozone countries, fiscal policy was tightened significantly at the start of 2013. This is expected to provide a further hit to domestic demand. IHS Automotive has revised downwards its forecast for the French market, with passenger car sales now expected to decline by 7.3% y/y to around 1.76 million units, which will take the market even further below the pre-crisis average of 2 million units. We do not expect a return to pre-crisis levels until 2021 when the forecast sales figure of 2.13 million matches pre-crisis sales of passenger cars in 2007. Combined light commercial vehicle (LCV) sales are forecast to hit 2.14 million units in 2013, a low point in the market, with sales then rising to 2.22 million units in 2014 and 2.48 million units in 2018.

It is well known that the macroeconomic stresses that have been a feature of the major southern Eurozone countries, Italy and Spain, have hit the passenger car markets hard as business and consumer confidence has collapsed amid declining domestic consumption and rising joblessness. The Spanish market has at least seen some respite as a result of the reintroduction of a scrappage scheme in September last year. However, despite evidence that the scheme is having a positive effect on the sales environment, it still has not managed to drag Spain's market back into positive territory, which rather begs the question as to how bad the figures would have been without it. According to IHS Global Insight, Spain's recession deepened in the first quarter of 2013, and the latest indicators suggest no respite for the economy in the second quarter. The perilous condition of the household economy will remain a major drag on activity, hurt by uncertain job prospects, shrinking real incomes, and limited access to credit. All these factors will continue to have a significantly negative impact on the short- and medium-term prospects for the country's passenger car market. Overall, the economy is expected to contract by 2.0% in 2013 and by 0.7% in 2014. In Italy the prospects of a return to economic growth are in the hands of the new centre-left tripartite coalition formed in the wake of the inconclusive February election. However, the structural issues that are hindering the Italian economy are deeply ingrained and sorting them out will not be a short-term project. The Italian recession is likely to deepen throughout the remainder of 2013 and 2014, with no recovery expected until 2015. Economic activity shrank for a seventh successive quarter in the first quarter of 2013 and at a brisk pace. Furthermore, recent indicators have signalled further contraction in real GDP in the next few quarters. With domestic spending shrinking rapidly during 2012 and early 2013, the near-term recovery prospects remain very bleak, with further falls in activity expected during the remainder of the year. For Italy, passenger car sales are expected to fall by around 10% to 1.28 million units this year. This is around half the 2.51 million-unit peak that was recorded in 2007 prior to the financial crisis.

The bright spot among this gloom remains the UK passenger car market, which continues to buck the trend in the Eurozone, although there are a number of specific economic and market factors that have supported this anomalous trend. Although there has been much debate over the wider, long-term efficacy of the UK government's austerity programme, it appears that quick action taken to reduce public spending by the coalition government on coming to office in 2010 has helped create the current conditions in which marginal economic growth is returning. This has created an environment in which private consumers have felt increasingly confident in making vehicle purchases. This increased confidence, supported by extremely keen finance and incentive deals, has acted as a catalyst for vehicle sales. The generally more positive atmosphere with regards to the development of the UK economy has also been supported by more positive data on job creation and the housing market. There is also a school of thought that the market has benefited from one-off personal windfalls that have resulted from the misselling of payment protection insurance (PPI). The amount allocated for the PPI misselling scandal is a considerable GBP25 billion (37.5 billion), although it is not yet clear how much has been disbursed. In terms of the medium- and longer-term macroeconomic picture, the United Kingdom still faces a tough task to develop sustained, significant growth given extended restrictive fiscal policy, still appreciable pressures on consumers, tight credit conditions, and muted global growth (notably including prolonged weakness in the Eurozone). Nevertheless, in its June forecast, IHS Global Insight raised its UK GDP growth projections for 2013 to 1.0% from 0.9% and for 2014 to 1.6% from 1.4%. In terms of the passenger car market, we are expecting a mild slowdown in the second half of this year, partly as a result of higher base levels, with sales climbing by around 4.6% y/y to 2.15 million units in the full year.

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