After an upbeat January, the month of February continued the positive start to the year for European car sales as the market continued to benefit from less post-incentive payback than was the case in early 2005. However, February's modest growth over last year (2.2%) was accompanied by a weaker than anticipated annualised selling rate that was partly depressed by heavy snowfall in Germany. This analysis is from JD Power Automotive Forecasting.

Summary

  • Sales in February were up 2.2% over the same month in 2005, as the market continued to benefit from less post-incentive payback than a year earlier.
  • Over the last three months the average selling rate is only a little lower when compared with the same period a year earlier. This result was also reflected in four of the five major markets in Europe.
  • The exception to this was Italy where the previous three-month average was on the up, the market enjoying a good start to the year.

    The Western European car market is off to a fairly good start so far this year with the opening months enduring less incentive payback than a year earlier, sales having not been as heavily pushed in December 2005. The average seasonally adjusted annualised selling rate for December 2005-February 2006 of 14.8mn units/year was down only slightly from a year before (14.9mn units/year). By this same measure, France and the UK were only slightly down, with Germany and Spain a little more so, while Italy showed an improvement. With growth anticipated in the likes of France, Germany and Italy this year, we can expect an improvement, if only modest, on the region's car registration total achieved in 2005.

    West European Car Sales
click table to enlarge

The chart above shows total West European sales. The squares represent the total number of cars sold in a year, while the hollow dots represent the selling rate in individual months, and the continuous line represents a five-month moving average of these. We indicate the latest two months. The most recent numbers underlying this chart are appended in the table at the end of this note. There were the same number of selling days in February, compared with 2005.

In Germany the selling rate in February came in at just 3.0mn units/year. The increased activity in the final month of last year naturally meant some relative weakness at the start of 2006 and while this came with a selling rate of around 3.2mn units/year for January, an implied weaker rate still in February is a little disappointing, although it has been put down to heavy snowfall. German consumer confidence has been slightly improved in recent months but the main impetus to market growth this year will be a pull-forward in sales as a result of a planned VAT increase in 2007. A consequence of this will be a weak start to 2007.

After a strong finish to 2005 - coming with the help of a change in company car tax that pulled forward sales - it was expected that the opening months of this year would suffer as a result. This has indeed been the case, with the average selling rate for January and February combined coming in at under 2.1mn units/year, although at least the February rate was an improvement on January. A more important month for the UK is March, when registration plates change again, and as the tax change impact continues to dissipate, the selling rate should improve once more. For the full year though we anticipate the UK market will again be weaker as the lacklustre consumer outlook holds retail sales back. At this stage, our view is that an outturn of circa 2.35mn for 2006 seems plausible.

As in other markets, in Italy, an incentive-induced finish to 2005 naturally had implications for a weaker start to this year. January's result came in relatively strongly though given the preceding year-end push (which itself appeared weaker than the year before). Registrations for the month of February were up on the same month last year, with the average selling rate for the last three months also year-on-year higher. The economic backdrop remains relatively weak, although consumer confidence in February was at least on the up. We expect the Italian market to close out a little higher in 2006.

In France, the market has not been through an incentive spike in December followed by subsequent weakness, as has been the case elsewhere. The three-month selling rate is a little weaker than a year earlier though, but we do not view this recent result as particularly worrying and instead expect that improving macroeconomic conditions will be conducive to another year of growth in car registrations.

Although Spain's selling rate for February was the weakest since October last year when there was a road haulage strike, and was also (year-on-year) down in volume terms on February 2005 (-2%), the most recent result should not be viewed with concern. In fact, February was only down because of a weakness from the much smaller rental sector of the market, with private sales conversely up well. The Spanish car market has certainly been one of the most dynamic in recent years and thanks to another robust economic performance this year, we expect a solid car sales outturn.

Among the smaller countries, Belgium and Ireland are off to a good start this year.

click table to enlarge