May 2012 management briefing: European car market forecasts (France)
The French car market has weakened this year as the economic outlook has worsened
As the financial crisis in Europe swirls, we bring you exclusive extracts from LMC Automotive's suite of quarterly European national market sales reports and forecasts. The reports cover forecasts for car and light commercial vehicle sales by make and model over the next seven years. This first extract from the quarterly series is France.
• GDP surprised on the upside in 2011Q4 with a 0.2% rise on the quarter. Private and public consumption increased slightly but the main surprise was on investment, with business investment up 1.3% in the quarter. Despite the Q4 result, we now forecast 2012 GDP growth at zero, with a fall in activity seen in Q1. In particular, we doubt that investment growth can remain robust this year as the economic environment is more unfavourable. The bank lending survey showing that French banks have significantly tightened their lending criteria at the end of 2011 is a source of concern. Banks are reporting an increase in the cost of their funding that they need to pass on to businesses and households.
• The car market finished 2011 at 2.2 mn units, having initially been inflated via registrations spilling over from the 2010 scrappage scheme. In recent months though, the market has eased back to an average of 1.94 mn units/year (for January and February) and the lack of momentum in the economy this year leads us
to forecast an overall drop in the car market of 8%, taking it to just over 2.0 mn
• At the segment level, smaller vehicles — Basic (A) and Small (B) — saw their share collectively down 2011 versus 2010 from 50.2 percentage points to 45.1 percentage points. As expected the smaller segments suffered in 2011 after the removal of the scheme. However its phasing out has seen the biggest distortion in comparison to other European markets - the Peugeot 107 and the Renault Twingo being hit the hardest in Basic segment (A), and the Peugeot 208 and Citroen C3 being hit the hardest in Small segment(B). The New Nissan Juke and Audi A1 should provide a boost to the smaller vehicles segments later in 2012.
• The Medium segment vehicles — Lower Medium (C) and Upper Medium (D) — have
remained solid throughout 2011 with a growth of 3.5 percentage points collectively
year on year to a market share of 35%. This success in 2011 was focused on the
Lower Medium with the help of models such as the Citroen C4 and DS4.
• Renault Nisssan has overtaken PSA to take its place as the top selling manufacturer in France for 2011, with an overall market share of 30.8%. Drilling down, the Renault brand has mainly been responsible for this boost and in particular the Renault master seeing a large increase in sales.
• The PSA Group share eased back throughout 2011 and has seen a decrease overall in the year. Peugeot market share has decreased year on year by 2.5 percentage points. At a closer look, the Peugeot 208 is largely to blame for this weakness. However the new 508 will help improve things for the brand into 2012. Citroen has maintained its market share year on year at 14.6%. Citroen sales were bolstered by the Citroen C4 and the DS4, but the C3 saw a heavy fall in 2011 year on year.
• France’s diesel car market continues to exhibit durability. The diesel share of new
car sales is routinely higher than 70% with 2011’s figure coming in at 72.4% and
the opening months of 2012 being higher still. With a pro-diesel fiscal environment
and rising fuel prices it is no surprise that the gasoline sector is shrinking. The
current position is not quite at record levels but we would not be surprised to see
previous peaks being beaten as we go forward.
• GDP surprised on the upside in 2011Q4 with a 0.2% rise on the quarter. Private and public consumption increased slightly but the main surprise was on investment, with business investment up 1.3% in the quarter. Two-thirds of this increase was attributable to a large rise in investment in transport equipment, which is very volatile.
• Despite the Q4 result, we now forecast 2012 GDP growth at zero, with a fall in activity seen in Q1. In particular, we doubt that investment growth can remain robust this year as the economic environment is more unfavourable. The bank lending survey showing that French banks have significantly tightened their lending criteria at the end of 2011 is a source of concern. Banks are reporting an increase in the cost of their funding that they need to pass on to businesses and households. For instance, interest rates on loans to businesses below €1m rose from around 3.2% at the beginning of 2011 to 4% at the end of the year.
• Another source of concern is the rise in unemployment. Even with rising demand, businesses were already cutting employment in H2 last year and in Q4 2011 unemployment rose by around 20,000 a month. As was the case in 2008, businesses are using the flexibility of temporary contracts to adjust staff levels and the number of temporary jobs fell in both Q3 and Q4 last year. With no significant pick-up in demand now likely, we expect businesses to lay off workers who had been kept on the payrolls in anticipation of a more robust recovery this year. As a result, the unemployment rate is likely to rise above 10%, the highest since the late 1990s.
• While higher unemployment will dent household incomes, the pressure on real earnings will be eased by our expectation that inflation will slow slightly this year as energy price inflation abates. This should prevent a fall in real wages, despite nominal wage growth being muted by the weak labour market. Excluding any impact from a possible ‘social VAT’, we forecast consumer price inflation will fall below 2% during the year. Combined with lower employment, this means that household disposable income will fall slightly this year. We expect this fall to be offset by lower savings, in line with typical behaviour by French households. With a saving ratio at close to 14% at the end of last year, there is room for lower savings. As a result, private consumption is forecast to grow only marginally this year.
The French market was down by a fifth in February 2012. Part of the reason for this is that early last year the market was still being inflated by the spillover of registrations related to the government scrappage scheme. Added to this is the weak economic backdrop, with the selling rate coming in at under 2.0 mn units/year last month. This is the second month in a row that the selling rate has not managed a 2.0 mn units/year level (January’s SAAR standing at 1.91 mn units/year). We expect the market will finish the year at 2.0 mn units, which would represent a circa 8% decrease on 2011.
As elsewhere, the French car market underwent a major distortion during the economic crisis and subsequent recession. If one were to look at the car sales performance alone, the very strong market of 2009 (close to an all-time record at 2.25 mn units) offers a completely different picture of events than any economic commentary, or data, would provide. The distortion was, of course, caused by the liberal employment of government scrappage incentives coupled with generous OEM pricing discounts which gave rise to once-in-a-lifetime bargains, especially on smaller cars. That period has now come to an end — the scrapping scheme finished in December 2010 though the impact was still being felt in registrations in the opening months of 2011. It must be noted though that French scheme was unlike any other in Europe in that the scheme was phased out via stepwise reductions in the incentive amount over 2010.
LMCA’s French Automotive Sales Forecast is the definitive forecasting service covering both cars and light commercial vehicle sales in the French market. Published quarterly as part of the LMCA European Automotive Sales Forecast which is widely used by the leading automotive manufacturers, it provides forecasts of sales by model over a time horizon of seven years into the future.
LMCA’s forecasts are built on macro-economic forecasts generated by our partner, Oxford Economics, and a detailed examination of demographics, fiscal and regulatory influences. This is combined with an in-depth analysis of each OEM, its strategies and its existing share of the market, both overall and segment-by-segment, as well as its roadmap for new model introductions. The French sales forecasts are provided by OEM, brand, market segment and model.
Clients to LMCA’s French Automotive Sales Forecast will receive the latest report in pdf format together with an electronic download of the data and forecasts, provided in annual timeslices. The electronic download is provided with filters and a pivot table.
Similar reports are available for Spain, Germany, Italy, UK and Russia.