Astonishingly, 2002 ended with the highest level of December sales ever seen in Western Europe. The main reason was a rush to take advantage of government incentives in Italy, which expired at the end of the year (though the expectation in the industry is that a new set of incentives will be announced before long). Total sales are likely to have been close to 1 million units in December, representing a rise of 11% on the year-earlier month, and a seasonally adjusted selling rate during the month at the all-time record level of 17 mn units/year.
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Summary
- 2002 ended with a bang. It is likely that, for the first time ever, more than a million cars were sold in Western Europe in December (including UK non-dealer sales), limiting the year-on-year decline for 2002 as a whole to less than 3%.
- A huge surge in Italian sales, by buyers seeking to take advantage of government incentives before their end-year expiry, was one of the main reasons. In addition, UK sales were once again exceptionally strong. In both of these countries, it was the highest-ever December figure by a very wide margin, and their results account for most of the gain in the region as a whole.
- German sales were less spectacular, but also rose by more than enough to compensate for the unexpected weakness at the end of November, and to reinforce the picture of gradual improvement that was seen throughout the second half of 2002. France and Spain produced surprise-free results, in line with the recent past.
The seasonally adjusted selling rate went off the chart in December, reaching an all-time high of more than 17 mn units/year. It was a freak month, essentially because of Italy, and produced a year-on-year gain of some 11% compared to December 2001. Given the unpromising economic environment (exemplified by the large drop in consumer confidence in the EU in December, to the lowest level since November 1996), one might be reminded of the final scenes of certain operas in which the heroine delivers a high-decibel aria, before dropping dead of consumption. Whatever one thinks of the outlook for sales in 2003, the important fact remains that during December about a million cars – a hundred thousand more than would have been expected – have moved out of dealers’ and manufacturers’ inventories and found final buyers. This inventory drop in its own right should be a source of reassurance to component suppliers: it will support production in the short term, even if sales drop back.
The rise in sales was not spread uniformly across the region. Three of the large countries – France, Spain and Germany – produced results that were in line with what one would have expected, given the recent past performance of these markets. If the selling rate in December exceeded its recent level by some 2.5 mn units/year, it was Italy that was responsible for perhaps two-thirds of that change (or, to put it another way, for about 65,000 of the 100,000 additional cars sold in December). Two other countries contributed most of the remainder: the UK had a stellar end to another record year, and in the Netherlands, where traditionally December is a month in which few vehicles are sold, the imminent ending of tax incentives for small and clean cars caused an end-year surge.
Thanks to the December results, car sales for the year as a whole were down by just 2.9%, a much smaller decline than could have been hoped for. We estimate the decline in total sales of all light vehicles of under 6 tonnes gross vehicle weight, including commercial vehicles, at 3.1% in Western Europe, and 3% in the wider geographical region that includes Turkey and other countries applying to join the EU.
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By GlobalDataThe 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.
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German sales are likely to have ended the year on an upbeat note. The figures for December seem to have cancelled the unexpectedly low level of sales in the final days of November. We expect sales of 237,000 units in the month, representing a 3.3 mn units/year selling rate. The picture that emerges from analysing the seasonally adjusted sales rate, as we have pointed out in previous reports, is one of gradually rising selling rates through the second half of 2002, after a very depressed first half-year. In December, this improvement finally became visible also in the form of an increase in sales when compared to the year-earlier month. Of course, the spectre of a rise in tax on company cars still hangs over the market. In addition, German consumer confidence fell back sharply in December, to the lowest level seen in five years, throwing further doubt on the durability of the recent improvement in car demand.
A record year in the UK car market ended with a record December. Nearly 145,000 cars were sold through dealers, some 20,000 more than last year, which was itself a record. Certainly there were some distortions, as some manufacturers and dealers sought to achieve year-end targets. In addition, the traditional reluctance to buy a car in December seems to be fading, making seasonal adjustment harder. But neither of these factors adds much to (or detracts much from) the main explanation, which is simply that UK buyers are responding enthusiastically to lower relative prices of vehicles, low interest rates, and rising housing wealth. Our figures include our estimate of non-dealer sales, and there is a good possibility that when data finally emerge, this estimate will be shown to be on the low side for 2002 as a whole.
Italy’s Ministry of Transport estimates December sales at 198,600 cars, a truly staggering number that exceeded the industry’s expectations by a large margin. The reason for this was a rush to take advantage of a package of government incentives that ended at the turn of the year. The expectation within the industry is that another package will replace it, but as of now none has been announced. A couple of months ago a Minister incurred the industry’s wrath by saying that there probably would be another package (thus appearing to risk jeopardising the rush to buy before expiry, though it is now amply clear that this risk did not materialise). Now, the press release from UNRAE (the Italian car importers’ organisation) expresses unease that a new package has still not been announced. The volume of new orders in December was also large. Although there will have been a major pull-forward effect, and a poor January outcome is widely expected, the balance between new orders and registrations suggests an adequate order backlog at the start of 2003.
There were no major surprises in the French results, but the selling rate of 2.2 mn units/year was rather better than in the recent past. This should be seen in conjunction with the very disappointing outcome for November. Taking the two months together, the selling rate seems for the present to have stabilised at 2.1 mn units/year, a little lower than the out-turn for 2002 as a whole. A backlog of orders for the new Megane appears to be resulting from production delays, though this would be a relatively small influence in the wider context. Consumer confidence has remained broadly stable over the last four months.
In Spain, as in France, demand in December was a little better than in November, but in line with the results for the year as a whole. The selling rate has been stable at 1.4 mn units/year for several months. The Prever plan of government scrapping incentives has gradually lost its impact: total sales of new cars under the scheme were down by 19% to some 270,000 units in 2002 as a whole. Sales of cars to rental companies have acted as a stabilising influence in the recent downturn in demand: this type of sale was down by just 1.6% in the year as a whole, while other types of sale fell by 7.4%.
We have already noted that the ending of tax incentives led to an unusually large volume of December sales in the Netherlands. This was the only positive surprise among the smaller countries. Results for Portugal were extremely weak for the second month in a row, and Belgium also produced a slightly weaker result than expected. Norway, Finland and Sweden also produced selling rates that were below their recent average.
Charles Young (cyoung@lmc.co.uk, 00 44-1865-791737)
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