While the August car market in Europe turned out to be an improvement on July's exceptionally weak result, it wasn't exactly a humdinger. But August is traditionally a slow sales month as much of Europe takes time out for the beach. September will be a better indicator of underlying demand conditions, but at this point in the year many analysts expect the European car market for 2005 to turn in a similar total to 2004's. This analysis is from JD Power-LMC.

Summary

  • In Western Europe, the seasonally adjusted annualised selling rate climbed to 14.4mn units/year from the 14.1mn units/year achieved in July, although the August rate is still on the light side.
  • The French market was particularly weak and the UK continues to struggle to find its previous form.
  • Germany and Italy posted better results in August than achieved year-to-July, although they were still relatively unimpressive, while Spain picked up the pace again after a brief respite.

Following a deflated result in July (on the back of the incentive-driven June result), a better outcome was naturally expected in August. This did come about, although a selling rate of 14.4mn units/year was still a relatively weak performance. Of course, August is traditionally the slowest for sales in the year and so its implications should not be overstated. We anticipate that September will see the selling rate climb once again as incentives are used in the scrabble to meet quarter-end targets. Towards the end of the year, incentives likely to be deployed once more and with the help of some pull forward of sales in the German market due to anticipated VAT changes, 2005 is shaping up to reach a very similar regional total to 2004.

The chart below 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 was one more selling day in August, compared with 2004.

click table to enlarge

In Germany, while a selling rate of 3.31mn units/year in August was an improvement on the previous two months - the average selling rate for June and July being 3.24mn units/year - it remained unexceptional. Looking forward, the outcome of the upcoming election this month may well influence the car market in a number of ways. The impact on consumer confidence, which is currently showing signs of some improvement, could certainly be one important factor. Another issue to bear in mind is the CDU manifesto pledge to increase VAT in January 2006 - taking this into account, we expect a pull forward on sales before 2005 draws to a close, with a natural consequence being slacker sales in early 2006. For the full year we still expect a rise of 2-3% over 2004.

In the UK, registrations data for August showed another year-on-year fall as a backdrop of slowing economic growth and weaker consumer demand hold the market back. The August selling rate stood at 2.48mn units/year, essentially the same level that we see the market reaching for the full year. Given that this outturn is achieved for 2005, it would represent a fall on the previous year of 4%, although liberal use of incentives towards the end of the year could pave the way for a better outcome - a key indictor the 2005's eventual outturn is of course the September result owing to the semi-annual plate change.
While the July result pointed to a slight easing of demand in Spain, sales in August once more looked strong - the 1.68mn units/year selling rate has only been bettered by the selling rates of January and March this year. The most recent result reinforces that 2005 will end up being a better year again than the previous record year of 2004, with around 1-2% growth expected. Looking to next year, a mild contraction in Spanish sales is expected as the underlying demand drivers ease back. We anticipate the Prever scrapping incentive will be renewed at the end of this year, although with this not guaranteed it does leave the Spanish car market open to the risk of a greater fall.

Although hardly scorching, the selling rate of 2.24mn units/year in Italy last month was at least a little better the average selling rate achieved over the first seven months of the year - 2.16mn units/year. What's more, incoming order data points to a further uptick in sales being imminent. Sadly though, the dismal performance of the economy and general weakness in consumer confidence will stamp out any hopes of a major improvement at the moment. With this backdrop in mind, the car market looks to be shaping up for a sales outturn of the order of 2.22mn units this year, with a mild fall again expected in 2006.

After a stronger start in the first half of the year, the most recent couple of months have been something of a disappointment in France. The latest month registered a selling rate of just 1.78mn units/year, worse still than July's dismal performance (1.84mn units/year), and well short of the H1 average rate of 2.12mn units/year. Of course, we must not over-emphasize the performance of last month as August tends to be a weak month anyway and so will not have a major impact on the full year result. Furthermore, we anticipate a stronger September, as has been the case in March and June, as incentives are employed at the end of the quarter to hit targets. Our full year expectation is still of a solid increase (3-4%) over 2004, with a further, more modest, market expansion next year; the aim of cutting income tax in 2006 will certainly help.

Turning to the smaller countries, solid year-on-year gains came in Denmark and Sweden and, while Belgium was on the up in August, it still has some way to go to make up for losses incurred earlier in the year.

click table to enlarge