West European car demand is now stabilising, after the declines of the first four months. That is the conclusion suggested by the June data so far available, taken in conjunction with the final May data. These show two consecutive monthly rises in the seasonally adjusted annualised selling rate (SAAR). The June increase was quite small, but for the present demand seems to be bottoming out at a selling rate of just under 14.4 mn units/year, which is pretty close to the average for the first half-year as a whole.
June had one more Sunday this year than last, making the year-on-year comparison look unfavourable. Perhaps half of the decline of over 8% compared to last year can be attributed to this calendar effect.
The German numbers contain enough hints of improvement to keep alive hopes of the long-delayed upturn in sales there. But the Italian and Spanish numbers confirm the poor performance of those markets. Meanwhile French sales were decidedly better than last month's disappointing results, though the trend is still gently downwards. The UK continues to return towards a lower and more sustainable selling rate.
The reports of year-on-year declines that have been reported for June sales were in, or near to, double-digits in many countries. This fact has been provoking nervous palpitations in financial markets that are currently disposed to interpret all news as bad news. The art of seasonal and calendar adjustment of European car sales figures is perhaps no more scientific than the art of deciding whether expenses should be booked as investment or as recurrent costs, but at least we in J.D. Power-LMC have nothing to gain from misrepresenting the results. And what these results indicate to us, is more a source of reassurance than of alarm. With half the year gone, the selling rate has averaged 14.4 mn in the past six months, a decline of 4.2% on last year's outcome. The five month moving average that we plot as the trend is still centred around the depressing April result, and therefore still pointing downwards, but the May and June results both showed an improvement.
If we focus on total light vehicles, as opposed to total cars, the strategic picture is still unchanged, though the cumulative year-on-year decline comes out a little higher, at 4.7% rather than 4.6%. Broadening the geographical scope to include the EU-applicant countries pushes the cumulative decline up to 5%.
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 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 is always room for error in estimating German sales until the Kraftfahrt Bundesamt finally lays down its pencils and abacuses around the 20th of the month. But the results look encouraging so far. Our expectation is that, notwithstanding the lower number of selling days, June will deliver a small year-on-year gain, and the strongest selling rate so far this year. Since last month was a very disappointing one, it might be more meaningful to look at the average selling rate for these two months, which comes out at 3.2 mn units/year, in line with the average for the first half year as a whole. Just as in Western Europe as a whole, sales in Germany appear to have bottomed out. Not coincidentally, consumer confidence also showed a noticeable improvement in June. The order intake for cars in recent months has been showing some signs of recovery, though it would be wrong to say that these are decisive.
June produced some very depressing numbers for Italy, both in terms of registrations and of sales. The press releases from both ANFIA and UNRAE stress the possible damage caused by expectations of government help to the sector. There have been many reports that, in order to alleviate Fiat's woes, the government is contemplating action to stimulate vehicle sales. Il Sole 24 Ore, for example, reported on July 3rd that the government is considering a plan to grant three years exemption from ownership tax to buyers of new cars. These expectations have led some consumers to decide to wait before placing their orders, while others have decided to postpone delivery of already-ordered vehicles. Certainly the order inflow was disappointing, but our general theme of stabilisation also applies to Italy. The selling rate in June was close to the recent average, and it is four months since the selling rate hit its low point. The difference, compared to the other major countries, lies in how far it had to fall before stabilising. Consumer confidence also declined in June, suggesting that the low level of car sales has deeper roots than just confusion about future government incentives.
French car sales recovered in June after a poor result in May. With Mr Chirac now firmly holding all the reins of power, and with tax cuts to look forward to before the year is out, some uncertainty has now been lifted from French households. Surprisingly, consumer confidence slipped a little last month, though in a longer-term view it can be said to have held nearly all of the large gains made in the previous month. The June selling rate was the strongest since January, though the range of fluctuation has not been wide. The trend SAAR is now flattening out after a decline that has been very modest by comparison with, for example, Germany, Italy or Spain.
The negative year-on-year comparison in the UK figures can be attributed to the combination of the extra Sunday, together with the additional day's holiday for the Queen's Golden Jubilee. (In addition, the SMMT was the only reporting agency to have hit on the idea of attributing a sales decline to the World Cup). In reality, this is still part of the long-term process of gradual reversion to trend in the car market. The selling rate in the month was still not very different from the record full-year level achieved last year, and the average selling rate over the first half year continues to exceed last year's. Consumer confidence slipped back a little, but a booming housing market continues to underpin household wealth, and the faltering stock market prevented the Bank of England raising interest rates.
Spanish demand had been bouncing around rather unpredictably in the previous couple of months, with an abysmal April result followed by a much stronger May figure. Our general theme of stabilisation applies to the June figure, which produced a selling rate very much in line with the 1.4 mn units seen in the year to date. Once more, the figures would have been worse had it not been for heavy reliance on rental sales, which declined by much less than the 18.8% fall in personal sales. Thus the kind of stabilisation that Spain is seeing is the same as in Italy, namely bottoming out after a particularly heavy decline.
Of the smaller markets, it is worth noting an unexpectedly strong result from Portugal. The Dutch market also produced a strong result in June. Even if the year-on-year comparison was still negative, the selling rate was easily the strongest this year. However, the Belgian figures were distinctly below expectations.
- Austria, Denmark, Ireland, Luxembourg and Switzerland: estimates for latest month
- Italy: latest month provisional estimate by Motorizzazione, previous months based on estimate of eventual revisions to Motorizzazione data.
- Spain and Portugal: figures include sports utilities, which are reported separately from cars.
- Germany estimated from data excluding final days of month.
- UK: includes estimates for non-dealer sales.
- The percent change in the final column compares the average selling rate in the year-to-date with the last full year.
- The average of the seasonally adjusted selling rate for an entire year is by definition the total of sales in the year.