After a weak January, February was another poor month for European car sales according to JD Power-LMC. The forecaster had expected the market to come back a little, but feels that the February market weakness is explained by continued 'payback' following the incentive driven boost at the end of 2004 and does not yet point to fundamental demand weakness or a deterioration of consumer sentiment.


  • West European sales fell by over 2% in February - seasonally adjusted annualised sales hardly rose from the low January out-turn. This was a poor month.
  • Weak results hit in Germany and Italy upsetting hopes that February would recovery quickly.
  • France and Spain, in particular, were the strong performers in the European market. French sales look poised for steady growth while the Spanish result was, once again, remarkably strong.
  • Warning lights began to flash in the UK market as sales fell by 15% year on year - the March result will be important in defining the outlook for the remainder of the year.

West European Car Sales

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February was not a good month. Sales fell by over 2% in a year when the number of selling days was the same as the year before - so the drop cannot be explained by calendar effects. We had assumed that the pattern from a year ago would repeat itself - an incentive-driven December would be followed by a payback-hit January with a gentle return to normality in February. This has not happened. There is the possibility that the level of underlying demand is so low that we are witnessing a genuine and durable decline in sales but, given that the consumer outlook has not worsened dramatically (it remains uninspiring of course), it seems likely that the poor February result is a consequance of the payback penalty being higher than expected. The performance of the market in March has therefore taken on greater significance as it will not only help define the performance of the UK market, but also other European markets.

The chart above 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 the same number of selling days in February, compared with 2004.

German sales in February were weak - the 3.09 mn units/year selling rate does not inspire confidence and, with recent comment from OEMs indicating that incentives may become more frowned upon, at least in Germany, in 2005, there is a small risk that the market may significantly underperform the VDA's recent forecast of 3.25 mn units for full-year 2005. We expect a market a little lower than this at 3.22 mn units (-1.4%), as sales continue to be undermined by high unemployment, which in turn will result in slow consumer spending growth and poor consumer confidence. All in the industry continue to look for elusive signs of recovery.

In the UK, a weak January was followed by a worryingly similar February: the selling rate managed to edge up to 2.27 mn units/year (from January's 2.17 mn units/year). In year-on-year terms - a valid comparison since there was the same number of selling days in February this year as last - sales were down by a massive 15%. This is a genuine warning sign that UK sales could fall sharply this year. However, the strength of this message must be diluted by the knowledge that February usually is, statistically speaking, an unimportant month, as buyers hold off for the issue of the new date plates in March (which is, statistically, a very important month). We must therefore reserve judgement until March on whether the severity of the decline in sales will be greater than expected - our own assessment remains that sales will fall by 6-7%. Recent consumer data has been somewhat more positive.

In Italy, February was another poor month, following on from the very weak, payback-hit, January. This was not a great surprise, given the dreadful state of incoming orders in January that were bound to have a negative impact in February. But worse still, consumer confidence indicators point towards further weakening in underlying demand. On a more positive note, we already suspect that manufacturers will be perhaps rather more proactive in Italy than other countries in supporting sales with incentives. Orders for February hint at some improvement in the selling rate for March and beyond, though the full-year total for 2005 is still expected to come in a little below last year.

In France the February rebound was fairly conclusive with the selling rate rising to 2.06 mn units/year, much better than the flat 2 mn units/year in January. It allows some confidence that our fairly conservative forecast, for a few percent rise in the full-year market, will be met in reality. There seems little doubt that manufacturers continue to incentivize in France as they do elsewhere, and we should not be overly concerned that this will change for the worse over the remainder of 2005 - and the slow improvement in the economy should ultimately deliver some gains in car sales.

The Spanish car market continued to impress with yet another sizzling result in February - the selling rate hit 1.67 mn units/year. The sustainability of this level of sales remains hard to justify and we note here that, in the first two months of the year, the large private element of total sales was hardly growing compared with last year. Perhaps some limits are being reached in this respect. This has not stopped the rental sector from growing in the first two months - sales rental companies were up by 13%. We continue to expect that this year's total will come in close to last, but find it hard to justify a projection for further strong growth after last year's 10% increase.

Among the smaller countries Ireland continues to do very well as buyers capitalise on an invigorated economy - something which looks set to continue. Signs of life continue to stir in recession-hit Portugal, though recovery will be slow.

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