- The April result in Western Europe was not quite as good as March, but it was a positive indication that sales are remaining solid in a year when Europe's consumer is only just beginning to recover confidence — the seasonally adjusted annualised rate of sales was 14.5 mn units/year.
- The rise in the selling rate in Germany was a positive sign, but past disappointments mean we should be cautious about reading too much into one good month.
- There is little risk of misreading the strength of demand in Spain where sales remain historically strong, despite a sharp slide in demand from rental companies — fall-out from the March terrorist attacks. Consumer and business sales were strong.
- The UK market dipped, somewhat unexpectedly, but strong consumer fundamentals should underpin stronger sales going forward.
- The Italian and French markets disappointed with lacklustre out turns.
One third of the year has now passed — the market has produced an average seasonally adjusted annualised rate of sales of 14.4 mn units/year. Our current expectation for 2004 as a whole is between 14.5 and 14.6 mn units, as strength continues towards the end of the year in the UK and Spain and weakness persists in France and Italy — the most significant implication from all of national figures was that the market in Germany may finally be on the mend, though we expect progress to be slow. Year-to-date comparisons with 2003 look fairly upbeat in the table below with a rise of over 3% already notched up. However, the level of demand in the first quarter of 2003 was at its lowest level for a number of years as a result of consumer worries resulting from economic underperformance and impending war in Iraq (see chart below). The market then strengthened in the second half of 2003 and it will prove harder for sales to outperform those results going forward in 2004. We expect that full-year 2004 sales in Western Europe will rise by less than 2%.
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 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 additional selling day this April, compared with 2003.
West European Car Sales
Was April a turning point for Germany? While we should point out that there is still some counting to do before the month can be formally declared, preliminary estimates look quite promising. The selling rate in excess of 3.3 mn units/year is the best for seven months and could mark the end of the recent period of depressed sales — the selling rate in the first quarter averaged only 3.1 mn units/year. However, while businesses have been gaining in confidence for some time, albeit in an erratic way, the consumer has not followed suit and there has been a weakening in consumer confidence since late 2003. Most forecasters of German car demand have been repeatedly disappointed over the past year, and we ourselves have lowered our expectations for the market (to under 3.3 mn units for 2004). Yet, this projection in itself involves some form of improvement in the selling rate from the first quarter and we should take the April figure as a step, even a small one, in the right direction.
The April result in the UK, though still preliminary, hints that the market may be coming off the boil a little. The 2.35 mn units/year selling rate should still be viewed as being strong from a historical perspective, but this level pales somewhat by comparison with recent strong market out-turns. Despite this slightly downbeat message, one cannot ignore the fact that the underlying fundamentals for car demand remain in place going forward with improving consumer confidence and growth in consumer expenditure likely to remain firm. We therefore continue to expect another good year in 2004 which, though a little weaker than 2003, should still be regarded as strong.
The reader should not be fooled by the very positive results from Italy in April, not least when viewed in year-on-year terms — sales were up by 12% compared with April 2003. The positive result was not so much a consequence of strong demand in 2004 as weakness in April 2003 when the market was suffering from an acute case of payback (incentives had ended in March 2003, pulling forward sales and causing weak demand in the following month). The seasonally adjusted annualised selling rate for April 2004 was in fact much weaker than the relatively healthy February and March figures. Looking forward, data for incoming orders indicate that we should not expect any marked improvement for a few months yet. We stand by our assessment that the market in 2004 will be of similar size to 2003 at 2.25-2.30 mn units.
French sales were weak. It would be hard to say that the poor level of demand in April was a big surprise since we had little expectation of a strong recovery in car demand this year. Even so, the 1.93 mn units/year selling rate was a disappointment. Consumer confidence remains weak and has not improved since the start of the year — the rebasing of official confidence surveys in January made it temporarily difficult to judge consumer sentiment at the start of the year but other data, not least car sales, has now plugged this gap to reveal a poor outlook on the consumer side of the economy. A 2.0 mn unit market for full-year 2004 remains in prospect.
The strong March result was followed up with another solid month for sales in April. Seasonally adjusted annualised sales were up at almost 1.7 mn units/year — a remarkably strong figure for a market where the annual sales record is only a little over 1.5 mn units (in 2001). Sales to consumers and businesses have been roaring ahead as confidence has risen but sales to rental companies took a nosedive in April hinting that, contrary to strong March figures, the terrorist bombings in March may have hit confidence within the tourist industry. While core demand remains so strong this should not have a major negative effect and we expect record sales in Spain in 2004.
Belgium was one of the stronger small markets in April, while Norway, Greece and Sweden were also solid performers.