February car sales in Europe look set to come in at a selling rate barely in excess of 14 million units/year, and were almost 4% lower than the same month last year. “This is an advance warning of the harder times that may be ahead for Europe’s automotive industry, if today’s combination of high oil prices, low consumer confidence and rising unemployment persists”, said Charles Young of automotive forecasters J.D. Power-LMC.
Although the selling rate is an improvement on January’s 13.8 mn units/year rate, this had been expected. Many sales had been pulled forward into December by tax and incentive changes in Italy and Holland. What was unexpected was the small size of the improvement. For comparison, full-year West European car sales in 2002 were 14.6 mn units.
Italy was the only major country to record a rise in sales in the month, thanks to a renewed programme of government incentives. Sales in Germany were static at a low level, which was not a bad outcome given that uncertainty about future company car taxes had eaten into corporate sales. Otherwise, decline was widespread throughout the region.
- After the violent fluctuations of December and January, the sales outcome in Europe in February takes the temperature of the market more reliably than the last two readings. Sales have clearly been depressed by the host of uncertainties – many relating to the Iraq conflict, whether directly or via the impact of higher oil prices – that have been weighing on consumer confidence.
- The decline has been widespread throughout most markets. The main exception was Italy, where a new incentive scheme, currently scheduled to expire at the end of March, provided a stimulus to sales in February. In Germany, the decline was relatively modest – on a year-on-year basis it is likely that there was little change – but sales remain static at a low level.
- French sales continue a steady, though not precipitate decline, and Spanish demand also weakened again in February. In the UK, where February is of minor importance, the year-on-year decline in sales volume compares with an exceptionally high year-earlier number; the underlying selling rate remains robust.
The SAAR (seasonally adjusted annualised rate of sales) in February came in at just over 14 mn cars/year in Western Europe. An improvement over January’s depressed 13.8 mn rate was to be expected, now that the hangover from December’s exceptionally strong result has been worked off, but the improvement turned out to be very small indeed. This low outcome is in line with recent falls in consumer confidence throughout the region. Sluggish economic growth, fears of war, and rising oil prices are combining to keep car demand subdued. The German market, though roughly static on a year-on-year basis, has remained stuck at a selling rate of 3.1 to 3.2 mn units/year for the last three months. With the exception of Italy and some Scandinavian markets, and the possible exception of Germany, all countries in Western Europe produced negative year-on-year changes in February, as well as selling rates that were below the 2003 outcome shown in the penultimate column of our Table below.
Some of the weakness in Western Europe is being offset by a modest recovery in Eastern and Central Europe. But not much. Year-earlier sales in Poland and Turkey had been deeply depressed, so it is not surprising to see an improvement. We estimate the cumulative decline for the whole of Europe (excluding Russia, Ukraine and Belarus) at 4.5% for the year to date, both for cars and for light vehicles, compared with the 5.3% fall in Western Europe alone.
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. The month had an identical number of Saturdays and Sundays as last year, so calendar effects were neutral.
click on the chart for an enlarged view
We expect that the result for the whole of February will produce a virtually unchanged outcome in German sales, compared to last February. The outcome for January came in a few thousand units higher than we had expected, bringing the SAAR to 3.2 mn units/year in that month, as it had been in December. The likely outcome for February will be a little lower than this. The industry has had several headwinds to struggle against. Uncertainty about company car tax continued to affect the market in February – the VDA estimated that sales of company cars had fallen by 14% in the month – though it now seems virtually certain that the planned tax increase will be abandoned after being defeated in the Bundesrat (rather than going to the Vermittlungsausschuss – the usual procedure for reconciling differences between Bundestag and Bundesrat). Fuel prices have risen sharply, and consumers have not shared in the improvement in business confidence which was shown by the rise in the IFO index. In these circumstances, stability of the selling rate was not a bad outcome.
The 7% decline in UK car sales should not lead to too much despondency, because the year-earlier number was unusually high. The results for February are of less interest in their own right than for any indications that they provide concerning March sales, which are typically four to five times greater. The fact that the selling rate remained in excess of 2.6 mn units/year provided some reassurance, amid many other signs that the retail boom may now be easing. Readers should be aware that our estimates for the UK make allowance for non-dealer sales, in addition to the dealer sales reported by the SMMT. Our estimate for last year included 77,000 such sales. A press release from R.L. Polk during last month estimated that these sales had declined last year to some 55,000 units. However, other authoritative sources have suggested a figure of around 120,000 such sales in 2002. We are maintaining our estimates, which happen to be in the middle of this range, unchanged, pending further information. What is certain is that the recent decline in the Sterling-Euro rate has sharply reduced the financial incentives for the purchase of new vehicles from overseas dealers.
The new government incentive scheme that was introduced in mid-January provided a boost to Italian registrations and, even more, to new orders in February. The flooding of Fiat’s engine factory in Molise meant that many orders for Fiat cars could not be delivered, and depressed Fiat’s market share, as well as depressing the total volume of registrations. The new scheme is currently due to expire at the end of March. Industry bodies ANFIA and UNRAE are pressing for an early announcement that it will be extended, avoiding a repeat of December’s last-minute rush to buy. The bank of orders will provide support in the coming months, but there is clearly a risk that uncertainty about future incentives will lead to instability in the flow of new orders. The selling rate in February, at 2.3 mn units/year, was in line with the 2003 outcome.
There is little to say about the French results other than that they continue the steady downward trend that set in half way through 2001. The CCFA press report continues to stress, no doubt rightly, the wait-and-see attitude of consumers, whose confidence took a very severe knock in February – much more so than in any other country in Western Europe. The SAAR was barely in excess of 2 mn units/year. It is a mathematical necessity that, unless the monthly selling rate increases in the remainder of this year as rapidly as it was declining last year, full-year sales will be lower.
Spanish sales seemed to have levelled out in recent months, after declining for most of last year. But the February result was another setback. It was the lowest February outcome for five years, and represented the lowest monthly selling rate since April. Car demand has sagged in response to the deceleration of consumer spending growth that has been going on in Spain, and the renewed rise in unemployment, together with the steadily diminishing impact of the Plan Prever incentive scheme.
We still do not have full-month figures for the Netherlands, but the data that is available suggest a rather significant fall. Last month, we had been surprised by how well sales had held up there in the aftermath of the tax changes that caused so many consumers to pull sales forward into December. But the impact seems to be coming through in the February results. Most other smaller countries followed trends similar to those of France and Spain. Portuguese sales again suffered a dramatic decline.
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