Spain's car industry, Europe's fifth biggest, is facing a sales slump as high interest rates prompt highly-indebted Spaniards to tighten their purse strings.

Average vehicle spending is forecast to fall below a 0.8% gain to EUR20,677 last year, a spokeswoman for top dealership lobby group Faconauto told just-auto, without providing precise estimates.

She said Spaniards are starting to feel the pinch from several recent hikes in interest rates, which are expected to increase again by 0.5% this year, and are becoming more cautious about buying 'big ticket' consumer items like new cars.

Despite the slight gain in 2006, average spending fell 5.5% on-year in December and the trend is likely to continue, the Faconauto spokeswoman said.

"There has been a steep fall in car prices after September as people have opted to buy smaller cars with less engine power," she said. "This country has huge debt levels [stemming from a housing boom] and with the higher interest rates, many people can't afford to spend a lot on a car."

Consequently, car sales are projected to fall 1.3% to 1.47m units in 2007, extending a 1.7% decline in 2006, and continuing the reverse trend after big gains in 2004 and 2005. SUV sales, which soared 15% in 2006 should increase just 5.4% this year, Faconauto forecast.

Last year's 0.8% spending rise pales in comparison with average increases of 5% in 2005 and 2004, according to Faconauto.

Ivan Castano