The West European car market took a nosedive in January as payback from the December incentives hit home. The seasonally adjusted annualised rate (SAAR) of sales fell sharply to just 13.6 million units a year, from 15.1 million units in December. However, the actual sales year-on-year drop in January was just 0.5%. "The result looks bad but must be seen in the context of the very strong December total: January suffered from payback for robust sales in the previous month so, going forward, there is no need to panic," said Pete Kelly of JD Power-LMC.


  • Seasonally adjusted annualised car sales in Western Europe dropped sharply in January to just 13.6 mn units/year. In year-on-year terms though the decline was small at just 0.5%.
  • Weakness was most evident in France, Germany and Italy. In the latter case payback from incentive exuberance in December was more to blame than weak underlying demand.
  • The Spanish market provided a strong impetus to the European total but UK sales cooled a little after a phenomenal 2003. Of the smaller markets Finland continued to shine.

The picture was mixed in January, resulting in an almost flat year-on-year comparison (-0.5%). While many small markets did well, demand in the core markets of France and Germany remained soft. In these two countries economic weakness is the primary problem and decisive recovery will not come about until economic prospects turn upwards. In Italy, and several other countries, there was a clear break between strong sales in December, when manufacturers were pumping the market with incentives, and January when such activity had to be paid for - at a basic level, these two months can be taken together in order to characterise the market with an average selling rate of 14.7 mn units/year. So January looks bad on the face of it, but when looked at in the context of recent strong sales there is clearly no need to panic. It is unlikely that this level of sales will be reproduced throughout all of 2004, given the uneasy nature of the economic recovery in Europe, but there remains room for a small increase in sales in full-year terms.

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 number of selling days in January of 2004 was the same as January 2003.

Click to enlargeEarly indications for sales in Germany have been disappointing. Optimism over car demand in the middle of 2003 has given way to uncertainty as results have repeatedly failed to meet expectations. The January selling rate, still a preliminary estimate, dipped below 3.1 mn units/year and is yet another blow to those, ourselves included, who had expected some pickup in sales in early 2004. Consumer confidence, hampered by ongoing uncertainty related to the much-discussed economic reforms, has also, worryingly, started to slip again, though not in an extreme way. This poor state of affairs should not continue indefinitely, especially if forecasts of an improvement in the rate of growth of consumer expenditure are to be believed, and an increase in sales after the prolonged spell of decline is anticipated this year. Experience, however, teaches us that there may be some bumps along the way.

The UK market enjoyed a robust December but followed this up with a relatively poor January result - sales rose by around 4% (including an estimate for imports) in year-on-year terms. A positive year-on-year change is often a good sign, but only if the month in the previous year was also strong: January 2003 was not strong. Like many other markets in Europe, the UK suffered in January from the exuberant incentives at year-end 2003 - but we think that there there may be more to it than that. Since the shift in the year identifier in 1999 there has undoubtedly been a readjustment in the seasonal pattern. Two very strong Decembers in the last two years, which were each followed by two weak January results could be a sign that this adjustment process is continuing. A combination of changing seasonality and incentives means that perhaps we should not be unduly worried that the UK market is about to fall sharply and, though we do not expect a repeat of the strong sales in 2003, 2004 should still be a good year by historical standards.

In late 2003 it appeared that the French car market was beginning to bottom out - the poor result from January has dashed such optimism, at least for the short term. The selling rate dropped to just 1.8 mn units/year (about 10% lower than we had been expecting). On the positive side, consumer confidence rose in January, indicating that the worst may be over and we may see a slow improvement in the selling rate throughout 2004. But even with such a development, the very low starting point for the year and buying behaviour which has been characterised by some in the French industry as continued "indecision" together imply that sales are unlikely to be much better than the 2.01 mn units in 2003.

The January result in Spain was the best for that month in the country's history. We see no reason at this point to suspect that a change in the seasonal pattern is responsible - and as the Prever incentive was extended in late November there is little likelihood that sales were still being boosted by an expected end of the incentive. Anfac forecasts an increase in sales of between 2 and 3% in 2004 but given the much weaker state of demand in early 2003, we thing this very strong start to 2004 indicates that sales could grow by more than this. It would not be the first time that forecasters have underestimated the strength of demand in Spain.

January was a poor month by recent standards in Italy with seasonally adjusted annualised sales falling to just 2.09 mn units/year. Like several other countries in Western Europe it is likely that incentivising by car manufacturers took place in December in order to meet targets - contrast the 2.9 mn units/year selling rate in December of 2003 with that in January. In order to estimate the underlying level of demand, these two months should probably be taken together, giving rise to an average just under 2.5 mn units/year. Looking forward it seems likely that sales this year will be little different to 2003. Consumer confidence remains shaky and incoming orders do not point towards recovery yet.

Click to enlargeAs in 2003 Finland started the year with another big gain - sales were up by 31%. Some positive news is also coming from the Netherlands where a year-on-year gain hints that perhaps that beleaguered market is bottoming out.