The latest data from Acea shows that the EU’s car market grew by 5.5% in January. Positive territory will be welcome across the region, but analysts note that the market remains far from ‘fixed’.
In January 2014, demand for new passenger cars in the EU increased for the fifth consecutive month, with a rise of 5.5% over last year. However, ACEA notes that in absolute figures, the total of 935,640 units registered marked the second lowest result to date for a month of January since ACEA began the series in 2003 with the enlarged EU.
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Car sales in Europe may be turning up, but the upturn is coming off a low base.
Last month, most EU markets posted growth, as did all the major ones, from +7.6% in the UK and Spain, to +7.2% in Germany, +3.2% in Italy and +0.5% in France.
The German car market started this year somewhat stronger than it did in 2013. The January result, a 7.2% gain, along with a solid pick up in the economy and consumer confidence, should see the German car market climb back above 3m units in 2014.
An upturn in Europe’s largest car market and the region’s economic powerhouse, Germany, is obviously a good sign, but the German automotive industry remains cautious about the market’s evolution. Matthias Wissmann, President of the German Association of the Automotive Industry (VDA), stressed: “We welcome the continuing stabilisation of the German passenger car market at the beginning of the new year. However, we should remain cautiously optimistic because the high growth rate is explained partly by the weak figures from last year.”
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By GlobalDataTurning to Europe as a whole, Wissmann added: “We can see that the recovery is becoming more definite, due especially to the improving sales in Western Europe. What is needed now is that the overall economic conditions should continue to stabilise, particularly in the eurozone, and inspire European consumers’ confidence in the future.”
And that’s a very key word: confidence. Consumers will spend on big-ticket items when they feel confident about economic prospects, that their employment is secure. Consumers across the region have been hanging on to their cars, delaying replacement. The average age of cars in Germany stands at 8.5 years and is higher than ever before. The automotive industry can only go so far in tempting car owners to upgrade to the best, modern products.
The latest economic data is stark. Slightly stronger-than-expected growth in Germany and France pushed the eurozone’s recovery up, but there’s a long way to go. Data released last week showed the eurozone’s economic activity rose by 0.3 percent in the three months to December compared with the previous quarter. This slightly exceeded market expectations for a 0.2% expansion.
In its latest projections, the IMF said that the euro area is “turning the corner from recession to recovery”. Economic growth is projected to strengthen to a hardly stellar 1% in 2014 and 1.4% in 2015, it said, but the recovery will be “uneven”. The pickup will generally be more modest in economies under stress, despite some upward revisions, including Spain. High debt, both public and private, and financial fragmentation will hold back domestic demand. Unemployment will remain stubbornly high, with austerity budgets firmly in place for years to come. The best that can be hoped for is a degree of economic stability and a sustainable, if slow, recovery.
We could be looking at a 2014 Western Europe car market up 2-3% on 2013; that would merely take it to where it was in 2012. On that basis, pricing pressures look set to stay.
LMC analyst Jonathon Poskitt said January’s growth was encouraging, but needs to be seen in perspective. “We saw the European car market stabilise in the second half of last year and now there is indeed growth and that’s welcome, of course,” he said. “But let’s not lose sight of the fact that we’re seeing a slow expansion off a very low market base. The market projection for this year leaves it at around 2012’s level and with some way to go to get back up to pre-crisis levels. Europe’s economy is still going to be pretty weak in 2014.
LMC notes that Western Europe’s car market is struggling to pull out of a steep dive that left it at a level last seen in the early 1990s. When you consider that the European car parc has grown by over 30% since then, the underlying picture is even worse, in terms of how far under ‘natural replacement’ the car market has fallen. In the depth of the decline lies some optimism for a wave of replacement purchases – at some point.
Carlos da Silva at IHS Automotive also expresses caution on the immediate outlook. “Of course, macroeconomic conditions are, at long last, showing signs of improvement,” he says. “But overall confidence, although improving too, is shaky. Austerity measures are far from over and job markets remain tense in many countries. This implies that a derailment [to recovery] is always a possibility.”
He also looks to the ageing of the car parc as a factor that will eventually bring a wave of replacement demand. “One of the best arguments for a return to growth in the EU is structural: car parcs have been ageing fast, too fast, as new car sales were nose diving. At some point, this just becomes unbearable. We suspect a tipping point will be reached soon, and most certainly has already been reached in some markets,” he says. “Replacement needs to happen. Remaining mobile is key to the economy. This might save European vehicles sales in the end.”
Recovery in Western Europe looks set to be a long haul. Nevertheless, the market is in positive growth territory again. Some national car markets have plumbed new depths of depletion and that could mean a stronger bounce back at some point as replacement demand upticks, given economic stability and an uplift to confidence. Long-term structural problems remain, but analysts say that 2015 could see an acceleration to demand if Europe’s economy avoids further reversal and financial instability.
When recovery to European demand gathers pace, it will provide some assistance to volume makers struggling with low plant capacity utilisation rates. But a return to pre-2008 levels of overall market demand looks a long way off, with some markets seen as very unlikely to get back to where they once were, even in the long-term.
[Charts below from LMC Automotive]
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