Car sales in Western Europe fell by just under 7% in April. Just as the March numbers were flattered, so the April numbers were worsened by the later Easter holiday. J.D. Power-LMC's estimate of the seasonally adjusted annualised selling rate (SAAR) which compensates for calendar and seasonal effects, shows an underlying level of demand of 13.75 mn cars/year in the month, slightly lower than the 13.9 mn average for the three preceding months.

Most of the deterioration was due to the ending of an Italian incentive scheme. For all countries other than Italy, the SAAR has remained very consistent in the year to date. "I am skeptical about any large Iraq war impact on these numbers," said Charles Young of J.D. Power-LMC. "Certainly there was no visible impact on car sales from the previous Gulf War, and the results, which are in line with the previous months, simply reflect the deterioration of economic prospects in the region, which have yet to feel the beneficial impact of the fall in oil prices".

Summary

  • European car demand weakened slightly in April. The seasonally adjusted annualised rate of sales (SAAR) fell from the 13.9 mn units/year average of the first quarter to 13.75 mn in April.
  • All of that decline was accounted for by Italy, where an incentive scheme had come to an end in the previous month. The selling rate in the remainder of Western Europe has stayed very flat in each month of the year to date.
  • April provided confirmation of the weakening trend in both French and UK sales, while German demand remained at the same low level that has prevailed since the start of the year. There was some improvement in the Spanish results.

Just as calendar effects tended to flatter the March results, they tended to make the April results look worse, since this year the whole of the Easter holiday fell during the month. With four months of the year gone, the cumulative decline in Western European car sales is approaching 4%. The comparison of the average selling rate with last year's selling rate, shown in the final column of our Table below, indicates a decline of almost 5%. The reason for the disparity between these two measures of the decline can be seen from our Chart below: the selling rate improved in the final quarter of last year.

The result that will have been watched out for with the most interest this month was Italy's. A severe hangover had been expected, following the incentive-induced surge in March. In the event, for reasons discussed below, the hangover was not as bad as feared, though it may have been postponed rather than cancelled. In the region as a whole, the willingness to purchase cars may have been adversely affected by uncertainties related to the war in Iraq. However, given the high degree of continuity between the SAAR in April and in preceding months, the evidence for an adverse "war effect" on car sales does not seem strong. This would be in line with the previous Gulf war, which also failed to produce any visible effect on European vehicle demand.

It is worth noting that the trend line in the chart below, which is a moving average of the SAAR for the last five months, is still being supported by the exceptionally strong December result. When this falls out of the average next month, it is virtually certain that we will see a sharp decline in that trend line.

The cumulative decline in year-to-date sales is slightly larger, at 4.1%, for total light vehicles (including light commercial vehicles) than for cars alone. If we expand the horizon to include all countries applying to join the EU (including Turkey) then in both cases (cars and total light vehicles) the decline is about 1% less than that for Western Europe alone.

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. The month had an identical number of Saturdays and Sundays as last year - further calendar effects were discussed above.

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We expect German sales to come in at about 285,000 units in April. (Following changes to the Kraftfahrt Bundesamt's counting procedures, we will not have to wait so long in future before the final figure is known). Although this is a substantial decline when compared with the year-earlier month, this is mainly due to calendar effects. In reality, the underlying SAAR is expected to come out at 3.15 mn units/year, essentially in line with the January and February results, and significantly better than the very disappointing March result. Final figures from the KBA showed the March outcome to be slightly worse than we had expected, at 319,000 units, though the variation made little difference to the strategic picture. It confirms that last month's SAAR was one of the lowest of the last decade. Up-to-date orders data are not available, but those that are show a continuing decline in the order intake for German manufacturers, offset in part by an improvement in orders for imported vehicles.

April is of course a much less important month for UK registrations than the preceding month, but the outcome of 194,000 dealer sales was very much in line with the results to date. As last month, the decline was steeper in private sales, but the outcome was improved by still-strong fleet and business sales. It translates into a selling rate of 2.5 mn units/year, which is still a remarkably strong result by any standard other than that of the last two years. There is room for uncertainty about the extent of non-dealer sales, which we estimate to be running significantly lower than in the previous year. Anecdotal evidence suggests that a large number of orders that have been placed with continental dealers for right-hand drive vehicles for use in the UK are being cancelled, now that the exchange rate makes this a less attractive way to purchase.

The reason why the outcome for Italian sales was less negative than had been feared was that many manufacturers had undertaken that, for any orders that could not be filled by the end of March, they would make sure that the buyer received the same benefits as if the vehicle had been registered before the end of the incentive scheme. However, the low intake of new orders in April, and the resulting low level of the bank of unfilled orders, suggest lean times ahead. There have been press reports that the industry is now expecting a full year out-turn of under 2 mn units, though we suspect that these might be based on a misunderstanding of the following, admittedly ambiguous, sentence in UNRAE's press release: "April registrations, based on our estimate of seasonal factors, project a year of 1.95 mn registrations, which would be the worst since 1997". This might simply mean that the SAAR in April was 1.95 mn units/year. We would concur with that, as our Table shows. Or it might imply that 1.95 mn is UNRAE's forecast for 2003. Since the SAAR has averaged more than 2.2 mn units/year in the four months that have been reported, some simple mental arithmetic shows that, for the full year to come in below 2 mn, the SAAR for the remaining eight months would have to average under 1.9 mn units/year - quite a gloomy prediction.

We have already noted that the French results were consistent with the trend of the previous months. As such, they are relatively surprise-free, except that the full year-to-date decline now brings into the open the extent of the deterioration, in a way that was not so clearly apparent until now. There were no specific distorting or mitigating factors. Consumer confidence in France has suffered more severely than in most of Europe this year, and although there was a slight recovery in the latest reported month, it remains at a very low level by historic standards.

The Spanish outcome was relatively encouraging, after a very disappointing March. It probably makes sense to average the two months, since it is always difficult to be confident about the precise effects on car sales of the changing date of Easter. When this is done, it shows a SAAR of 1.3 mn units/year, very much in line with the two previous months. This suggests that demand has flattened out after the decline that set in during the final months of last year.

Among the smaller countries, what look like very poor results for Belgium, Greece and Norway on the year-on-year comparison turn out simply to be continuations of the low selling rate in earlier months. There is a positive surprise from the Netherlands, though results for the final ten days are not yet to hand, so that there is some margin of error in our estimate. Possibly sales that were postponed after the tax increase at the start of the year are now being made.

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