Summary

  • The West European market got off to a rather weak start to the year. The selling rate of 14.6 mn units/year was lower than in any month since last March. Year-on-year comparisons have again turned negative.
     
  • The weaker selling rate can be traced mainly to two countries: Italy and the UK.
     
  • In the case of Italy, this can be seen mainly as a reaction following artificially high numbers in December. The combination of the last two months probably gives a better indication of the (still robust) state of the Italian market than the January figure alone.
     
  • In the case of the UK, the selling rate had been freakishly high since September, as the consumer boom blazed. It is still burning brightly, but January was less abnormal for car sales than the months that immediately preceded it.
     
  • German sales were in line with, or slightly higher than, our expectations.
     
  • Demand in both France and Spain got off to a strong start, belying the fears of weakening in Spain which the previous month's weak figures had suggested.
     

Weak overall start mainly due to Italy and UK

The monthly selling rate has been close to, or in excess of, 15 mn units/year for each of the last nine months. In January, it dipped to 14.6 mn. The results for Germany, France, and for many smaller countries, were close to or slightly better than what recent trends suggested, and the results in Spain were more than slightly better.

The weaker start to the year was due to Italy and the UK. Although the UK result still looks strong when compared to the previous January, what was happening in the final quarter of last year was that the West European selling rate as a whole was being supported by some quite astronomical UK figures. Though still strong, they are no longer astronomical.

At the same time, Italy is suffering from some payback after a period in which sales were being sustained by exceptional marketing effort. Two conclusions can be drawn. On the one hand, the sales figures of the final months of last year give an unrealistically up-beat picture of the level of sales that can be sustained in the current economic climate. On the other, the results for January are not quite as disappointing as they may appear at first sight.

The 1.7% year-on-year decline in West European car sales shown below is expected to be 2.2% if all light vehicles are considered, and if one brings into consideration also the EU applicant countries in Eastern and Central Europe, we estimate the decline at 2.3%.

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 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.


Germany off to an alarmingly weak start

January sales in Germany got off to an alarmingly weak start, but it now looks as though we are heading for a figure of just over 240,000 units, which is fractionally higher than we had expected. This represents a selling rate of 3.25 mn units/year, not quite as good as last year's out-turn, but a decisive improvement on the very low result seen in December. The final December figure had come out at only 226,174 units, below expectations, and representing a selling rate of well under 3.2 mn units/year. Weak order books remain a worry - we understand that the level of new orders has flattened out after its recent decline, but has not yet begun to perk up. Consumer confidence, which had been falling steadily until November, has stabilised in the two months since then, but has yet to show any sign of improvement. It is worth remembering, though, that last time consumer confidence was at its current level, the automotive market was a great deal brisker than it is today.

Italy cools off strong base

The poor Italian result in January has to be seen side-by-side with the exceptionally strong December result. This had been inflated by a large amount of pre-registering and other measures. It may be more meaningful to focus on the average selling rate in December and January combined, which was a very healthy 2.5 mn units/year selling rate, than to worry too much about the depressingly low 2.3 mn selling rate that we saw in January alone, which would convey an unnecessarily downbeat impression of the state of the market. No new information about the order inflow was published in January, but at the start of the month the outstanding order bank was relatively positive. A survey of dealers conducted by the Centro Studi Promotor reported that 31% expected demand to fall, while only 14% expected it to rise. Of at least equal importance are the 55% who expected no change. The data on incoming orders and the level of the outstanding order bank seem consistent with this latter view.

Car demand in France shows improvement

Car demand in France had seemed to be slipping gently back in the second half of last year, after climbing strongly in the first half. However, the January result does not fit in with this picture. The selling rate was just under 2.3 mn units/year, significantly higher than in recent months, and higher, too, than last year's average. The slight improvement on last January was not due to any calendar differences. It represents a very reassuring start to the year. The level of incoming orders also remained firm, and the bank of outstanding orders is fractionally higher than a year ago. Consumer confidence has been broadly stable since September, having neither shown any further deterioration, nor any sign of recovery.

UK demand eases

In the final months of last year, the UK numbers persistently came in higher than any reasonable observer had a right to expect. The selling rates were stellar, far exceeding those in France and Italy which are normally of a similar size. The January figure was a change from this. Sure, it was high, but it was also normal in the sense that the SAAR of 2.5 mn units/year was in line with last year's average, and not with the freak results of the previous four months. In fact, it was fractionally lower than we had been expecting. It may imply that the consumer spending boom is at last beginning to tail off - even though the consumer confidence indicator rose during January, as it had done in the two previous months.

Spain shores up

The selling rate in Spain in December had given us cause for concern. It had been sinking steadily since the middle of last year, and December was by far the worst month for three years (excluding the previous December, which had been distorted because buyers were awaiting the extended PREVER scheme which came into operation last January). January was reassuring, in that it produced a selling rate very much in line with last year's average of 1.5mn units/year. There were no distorting factors as far as we are aware. It was the more surprising, given that Spanish consumer confidence has been sinking steadily, and January produced the lowest reading for six years.

Among the smaller countries, Ireland has a sales pattern that is very "front-end-weighted", with a high (and rising) proportion of sales made in the early months of the year. The January result, in the context of a market that has been falling away rapidly from an unsustainable peak, was fairly reassuring. It is worth noting that Portugal has changed its reporting conventions, so that sports utility vehicles, which used to be separately reported, are now included with cars. This causes no comparability problems for us, since we have always combined the two, but needs to be borne in mind in using any other data source. SUV sales remain minimal, following tax changes last year, but were swollen last January by purchases made just before the tax rise. The Portuguese market as a whole continues its decline. The Swedish result was moderately reassuring, hinting at an end to recent steep declines in the selling rate.

Charles Young
Oxford, England, Feb 6th 2002.
(cyoung@lmc.co.uk, +44-1865-791737)