ANALYSIS: West European car market 'over the worst'
Data released by JD Power Automotive Forecasting shows that car sales in Western Europe declined by 5.4% in December to leave the market for the year down 5.2% on 2009 at just under 13m units.
JD Power said that the December result - which saw the German market turn positive again – was a less severe drop than in the previous few months. It also witnessed a rise in the selling rate compared to recent months due to a boost from the ending of some remaining scrappage incentives, as well as manufacturers incentivising more heavily last month to make up for a bad year.
The big swing market in 2010 was Germany, with full year sales down by 23% in a scrappage-boosted 2009 (click here for more analysis and data on Germany).
JD Power forecasts that the West European car market will register a slight fall in 2011 with sales of 12.7m units, 2% below the 2010 tally.
The year 2010 was described by JD Power as a roller-coaster ride for the European car market. Although the most important scrappage scheme in the region — that in Germany — had run out of steam at the back end of 2009, there was plenty of government support around to help boost West European car sales in the opening months of 2010. The first quarter benefited from the spillover of registrations related to scrappage schemes in Italy and France (the latter scheme’s incentive being reduced throughout 2010). The region was further supported by the later running schemes in the UK and Spain.
However, moving into the second half of the year, the selling rate for Western Europe plummeted to 11.9m units a year (average for the third quarter), JD Power said. Some of this was payback from the pull forward in sales preceding this period but it was, nevertheless, an extremely weak result. For the rest of 2010, negative year-on-year results continued as the market was compared with an incentive-inflated period in the previous year.
By December the annualised selling rate for Western Europe was up to 13.6m units from a low of just over 11m units in July.
German car sales in December were up on a year-on-year basis by 6.9% to leave the full year market was down by 23.4%. JD Power said that the December result in Germany needs to be seen against a weak month in December 2009 when the the boost from the German government scrappage scheme had just finished, but the result suggests underlying improvement.
The French market also rallied in the final month of 2010, with the seasonally adjusted annualised rate of sales (SAAR) climbing to 2.53m units a year, its best result of the year. A tougher year is in prospect for the French market for 2011 now that its scrappage scheme has ended, JD Power said.
The Italian market also picked up at year-end, though it rounds off a difficult year in Italy.
"The Italian car market was down 9% to 1.96m units in 2010," said JD Power analyst Jonathan Poskitt. "There was some spillover of scrappage sales into the early part of 2010, but as the year progressed the lack of incentive support became clearly evident in a declining selling rate."
The Spanish market remains firmly in the doldrums, with the selling rate again coming in below 800,000 units a year. The signs remain bleak for this market which is suffering the effects of severe recession, illustrated by a stubbornly depressed construction sector and unemployment at 20%.
"The Spanish car market annualised selling rate is hovering at around 800,000 units - which is way down on previous market peaks of around 1.6m units," Poskitt points out. And the Spanish market is facing further decline. "We forecast a 10% drop to 880,000 units in 2011. It has been a severe downturn in Spain after the ending of a a scrappage scheme and the picture on the economy remains pretty bleak."
The UK market fell 18% in December, taking the full year number to 2.03m units (+1.8%) and the SMMT has warned of challenging conditions ahead for the UK market.
Underlying economic drivers to pick up
JD Power said that while the underlying economic drivers for car demand in Europe should continue to pick up this year, it is forecasting a 2% decline versus 2010. The reason is that the 2011 full year market will compare to a 2010 market that still benefited from government scrappage support, especially in the first half.
Poskitt warned that there remains great uncertainty over the impact of the austerity measures adopted by European governments and the ongoing sovereign debt worries.
“This recovery to the West European car market is still fragile and these things could further hamper economic recovery and that would hit car demand,” he said.
"We are perhaps over the worst with underlying improvement to demand becoming more evident in the year ahead and becoming more established as the European economy strengthens, especially in the second half and beyond. But it is important to bear in mind that this is a very gradual recovery by historical standards and still subject to significant risks associated with the macroeconomic environment."