European new car sales held steady in May. While there will be some disappointment that the gradual upward trend of recent months did not continue, there is at least no sign yet that higher oil prices are adversely impacting car demand.

The Seasonally Adjusted Annualised Sales Rate (SAAR) is estimated at 14.5 million units - almost flat on April's level and the cumulative SAAR for the first five months is almost flat on last year. There were signs in May that the growth markets of UK and Spain are now running out of steam, but Germany showed a relatively solid performance given fewer selling days in the month.


  • The seasonally adjusted annualised rate of sales held steady at 14.5 mn units/year in May. Oil price increases have yet to hit car demand.
  • The German market enjoyed a relatively solid May when measured on a seasonally adjusted basis, immediately following a good April out-turn. The decline in year-on-year sales owed a great deal to calendar effects with fewer selling days in May 2004 than 2003.
  • The stronger markets in Western Europe showed some indication that they cannot be counted upon indefinitely to provide impetus to Western Europe's car market — results were still very good in the UK and Spain, but were slightly off the rapid pace of the last six months.
  • After some very poor performances in recent months, markets in France and Italy surprised on the upside, offsetting concerns resulting from potential weakness in the UK and Spain.

Sales grew by 1% in May, when compared with the previous year, and on a seasonally adjusted annualised basis there was very little movement from the previous month — stability in sales at or around the 14.5 mn units/year level has now been in place for over six months if one compensates for the artificial distortion that year-end incentives caused in December/January.

Underneath the surface a slight shift in the geography of demand took place as France and Italy plugged slight slowing in the UK and Spain. The situation in the latter two markets is not a concern at this point in time as the factors driving record demand remain broadly in place: namely strong consumer confidence and robust spending, not to mention record levels in residential property valuations. We are not so confident that the French and Italian results will be sustained as some fundamental weakness remains — there may be some less positive news in coming months. The German market performed well, reproducing a good result in April.

The price of oil has yet to make a real direct impact on car demand. Historical price spikes have had little measurable effect on sales with the secondary effects, primarily in the form of a slowing in the economy, being the major mechanism for generating slowdown. The message here is that it will be through the macro-economy that the bulk of changes will be delivered (increasingly negative changes as long as the oil price remains high and volatile), though short-term changes in sales at the monthly level may result from highly disruptive events related to expensive fuel, such a public protests.

The chart 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 fewer selling day this May, compared with 2003.

In Germany the May result was a further piece of positive news after the unexpectedly strong April — in both months the selling rate topped 3.3 mn units/year and produced the best results since the third quarter of last year. However, we should be careful not to get carried away by these two months data. Consumer confidence slipped again in May — not drastically but certainly a move in the wrong direction — and it has been sales to consumers which have held back the market for some time now. We are expecting that the selling rate may ease back over the course of the next few months in response to consumer weakness and it may be 2005 before the level of strength in sales exhibited in April and May is repeated and improved upon. We (broadly) retain our expectation that the market will come in at around the 3.25 mn units level in 2004.

The out-turn in the UK was an improvement on the slightly worrying April result but, with a selling rate of less than 2.5 mn units/year, it was scarcely a convincing signal that the market will be able to match the record strength of the past few years. A number of concerns are now on the radar for the consumer, not least rising fuel prices and interest rates. A small decline in consumer confidence, the first decline for over a year, reflected a deterioration in the short-term outlook — and it was sales to large fleets which were the strongest element, not the retail sector which reflected some caution. That said, the macro-economic backdrop remains favourable for vehicle demand, despite the increased risks, and a market in excess of 2.5 mn units is still expected for 2004 in full.

After a slightly disappointing April result the Italian car market bounced back in May. The selling rate topped 2.3 mn units/year and sales for the month were up by 11%. However, this impressive year-on-year comparison reflects the weakness of sales in May 2003 as much as it does strength in 2004. May 2003 was a month in which sales were depressed as a result of payback from the ending of an eco incentive scheme two months earlier. Incoming orders continued to be weak in May, supporting our expectation that full-year 2004 will be no better or even worse than 2003.

In France, the May result came as relatively good news, at least when compared with the weak results which have dominated the last six months. The selling rate, at 2.14 mn units/year, was still modest in a longer historical context but compared with sales figures from recent months the comparison is favourable — it was the highest monthly level for seasonally adjusted annualised sales since September 2003. The level of consumer confidence in the month remained somewhat depressed and we are not convinced that the level of demand in May can be sustained in the remainder of 2004.

The Spanish market remained significantly above year-earlier levels in May — but from a seasonally adjusted annualised perspective there was an easing when compared with early 2004. The selling rate dipped from an average of over 1.6 mn units/year in the first four months of 2004 to a little over 1.5 mn unit/year in May. Retail and business sales remained relatively strong, notching up gains on the previous year while the situation for sales to rental companies looks to be stabilising: sales were down by 3% but this is a huge improvement on the 24% drop in April, a result that now looks increasingly like a short-lived negative response to the March terrorist attacks.

Greece, Norway and Portugal stand out from the smaller countries as offering greatest positive contributions to year-on-year increases in May.