Blog: The 'lost decade' is reality
Dave Leggett | 13 April 2012
I was talking to Jonathan Poskitt, analyst at LMC Automotive, earlier this week about the latest West European car sales numbers.
In essence, the car sales numbers are coming in as expected. Germany (and to a lesser extent the UK) is holding up, but France, Italy and Spain are either declining rapidly or in the doldrums (Spain). And there's not much joy in the smaller markets (Greece was down 43% last month).
If the economic picture is as it is, austerity budgets coming into play and national economies generally struggling, car sales will inevitably take a hit. The forecasters have got this one right.
The conversation turned to the longer-term outlook. There wasn't too much cheer there. A long adjustment is in prospect, the eurozone currency structural issues firmly on a long-term horizon. Household incomes will be under pressure for a while yet.
This brought me to a recent conversation with Honda Europe's Ken Keir. Several things stuck. One, he said that he believes many car customers are realising that they can hold on to their cars for longer – though there are limits. Maintenance costs go up and at some point, many of us want a change. But the economic crisis has ushered in a change in behaviour, and one also supported by ever better quality - cars are better for longer. Two, in southern Europe, he says they are seeing two-car households starting to give up the second car and replace that with a motorcycle (Honda, as a two-wheeler player, in a good position to see that). I wonder how much more of that sort of thing we might see? When you hear that real incomes in some places are going to decline by 20% in real terms, that's not the sort of thing that is easily reversed on a short timescale. People are impacted, severely, and they won't forget it in a hurry either.
The effects in Europe of the economic/financial crisis that began in 2008 (arguably 2007) will run for some time, even if a gradual recovery sets in later this year and into 2013 (it will be recovery from a very low base). Which brings us to the size of the European car market and prospects for recovery. When will we get back to pre-crisis levels? Keir says 2020. Gulp. Is that over-pessimistic? Jonathan Poskitt says that is broadly in line with the LMC projections – around 2018, to be precise.
So there you have it – a decade of adjustment following an international banking sector screw-up. Sobering thought.