West European car sales held up in October

The stronger trend in European car sales since mid-year was maintained in October. The SAAR (seasonally adjusted annualised selling rate) during the month was just under 14.7 mn units/year, which was higher than the average for the year to date, even though it was well below September’s remarkably strong level. The demand revival in Germany continues and incentives in Italy are lifting sales there.

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Summary

• The stronger trend in European car sales since mid-year has been maintained. The SAAR (seasonally adjusted annualised selling rate) during the month was just under 14.7 mn units/year, which, as the Table below shows, was higher than the average for the year to date, even though it was well below September’s remarkably strong level.
  
• Crucial to this improvement has been the stronger trend in German sales. The selling rate averaged 3.2 mn units/year in the first seven months, but has been around 3.4 mn in the last three months.
  
• Three of the four other large markets – the UK, France and Spain – had surprise-free results in October, closely in line their average performance over the year to date.
  
• In Italy, demand has clearly improved since the start of the government incentive scheme in July, but sales in October produced no further rise in the selling rate beyond that seen in the two previous months.

As in a soccer match, the European automotive market in 2002 has been a very different story after half-time. The first half-year was a period of steady decline in demand, as can be seen from our chart below. The SAAR averaged just under 14.5 mn units/year, and was declining. But in the four months that we have had of the second half-year, we have had a 14.7 mn selling rate, and the trend has been rising. A key issue, which will occur to anyone who has also been following the North American market, is to what extent these changing fortunes have been due to manufacturer incentives – in other words, by offering reductions from list prices, low-interest loans and so forth. This is an almost impossible issue to decide statistically, since systematic information on average incentives is available in few of the major countries, let alone on a Europe-wide basis. However, our feeling is that the exceptionally strong September market (in comparison to what went before, or to the following month) probably owed a great deal to manufacturers seeking to sell off the excess inventories which, in our reading of the data, had been accumulating during the middle two quarters of this year. In addition, of course, there have been the state-financed incentives, offered by the Italian government, which have had an impact on the selling rate there.

The cumulative year-on-year decline in car sales has now shrunk to 3.5%, both for cars, and for light vehicles as a whole (including commercial vehicles under 6 tonnes gvw). For the broader European market, including the EU applicant countries, the cumulative decline is 3.3% for cars and 3.1% for light vehicles.

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 is no mistaking the improvement in German demand. The October registrations volume is expected to come in at around 282,000 units in October, which, for the third consecutive month, would represent a selling rate of 3.4 mn units/year. The evidence on orders is also positive, though there is some concern that these orders may be somewhat artificial (for example, vehicles destined for showrooms rather than for customers). This is consistent with our idea that some of the sales improvement may be due to manufacturers pushing harder. Whatever the reasons behind the higher volumes, the data for registrations in the current and recent months confirm that the improvement is here, and the order data does not suggest that it is going to go away in the very near future. Nevertheless the further sharp drop in consumer confidence during October does show how weak is the macro-economic foundation for this improvement.

The UK’s sales volume in October was strong, but not quite as strong as it had been in the third quarter. Purged of seasonal factors, the selling rate in October was 2.6 mn units/year, which is some 80,000 units lower than the average for the third quarter. This is still a market on the boil, but bubbling a little less briskly than before. Sales to private buyers were a smaller proportion of the total in October than they had been for the year to date (47% and 49% respectively), and also a smaller proportion than in last October. Again, this is at least suggestive of the fact that manufacturers may have had to push harder to maintain volumes.

The 190,600 new registrations estimated by the Italian Ministry of Transport in October equate to a 2.3mn selling rate, virtually identical to what was seen in August and September. During the month, Minister of Transport Marzano said that it was possible that the incentive scheme, which was originally to expire in December, would be prolonged, and many buyers will have taken this as a sign that there is no rush to buy before the end of the year. There were strong rumours that the incentives might even be made more generous from January, which would have had a negative impact on near-term sales. These rumours were met with a denial: presumably officialdom has realised that the policy that will help Fiat the most is to keep quiet about what will happen after December until the time has come, and then announce more incentives. The order intake remained very strong in October, again exactly in line with the other three months since the scheme was started (purged of seasonality). Consumer confidence dipped to its lowest rate in three years, but for the present this measure has become de-linked from car demand.

During the first half of 2002, the French market was the most steady and reliable of the major Eurozone markets, and the one which was showing the smallest decline. That, too, has changed in the second half of the year. As we have seen, Germany and Italy have had some increase in volumes. In France, the trend towards a steady, albeit fairly modest, decline has continued. From an average selling rate of 2.2 mn units/year in the first half-year, we have had just under 2.1 mn in the four months of the second half-year. The October result was exactly in line with this. On the positive side, orders appear to have picked up since the Paris Motor Show, and there are reports of a good order inflow for the new Renault Megane. (However, it is worth noting that Renault’s slide in European market share this year has not primarily been attributable to the Megane, but to other models in Renault’s line-up).

Although the result for Spain was exactly in line with the average for the year to date, this is, as we have noted before, a fairly positive sign. It shows that the steep slide in demand in the first half year has run its course, for the time being at least. Monthly sales are now flatlining at around 1.4mn units/year, with even some possible hint of improvement in the last few months.

The most notable result among the smaller countries was the very poor outcome in Portugal. This is one country in which developments in consumer confidence and car sales have marched in line. A steep fall brought consumer confidence to the lowest level since this series began to be measured in 1986. While the decline in car sales was less severe, one needs to go back to 1995 to find a selling rate as low as the one we have seen in the last three months.

Charles Young (cyoung@lmc.co.uk, +44-1865-791737)

Oxford, November 7th 2002.

Notes:

• 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 and Netherlands: estimates based on information covering part of the latest 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.

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