The
West European new car market recorded an encouraging upturn in September according
to data released by JD Power-LMC. The September SAAR (seasonally adjusted annualised
rate of sales) for Western Europe was 14.8 million units/year, one of the best
in the year so far. Actual sales of 1.35 million units were some 1.7% ahead
of the same month last year, though year-to-date sales are still 2.1% lower
than the same period last year.
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“Strong out-turns in many of Europe’s key markets helped boost sales in September.
Manufacturer incentives are once again contributing to marketstrength, while
consumer confidence, though still low, is improving steadily,” said Pete Kelly
of JD Power-LMC
Summary
- September West European car sales were strong – the seasonally adjusted annualised selling rate was 14.8 mn units/year, a marked improvement on the average for the year so far. Compared to last September, sales were up by 1.7% on year-earlier levels at 1.35 mn units. This result was surprisingly good, given the recent poor macro-economic backdrop. It partly reflects a burgeoning recovery in consumer confidence but, more importantly, highlights the effects of widespread manufacturer incentives aimed at buoying demand.
- Markets in Italy, Spain and France made notable gains in year-on-year terms. Spanish sales were very strong and hint that sales to consumers and businesses may be strengthening. Results in Italy were also impressive where the hangover from the end of a government incentive scheme is being quickly dissipated. The mildly positive French result is also of interest as it comes in a year when sales have been quite depressed thus far.
- The UK market was still strong but down on year-earlier levels. Buoyant consumer demand is almost offsetting losses in large company fleet sales. A downward adjustment looks inevitable but predicting the timing will be difficult, especially if manufacturers respond to an anticipated fall in sales with better deals.
- The slow and steady recovery in Germany continued in September. Initial estimates show a 1.7% rise in sales to just over 270,000 units in Europe’s largest market.
Sales were up by 1.7% in September as strong out-turns in a number of the big countries helped achieve one of the best results of the year so far – the comparison is even more flattering when one considers that September 2002 was a strong month in itself. Furthermore, the selling rate moved up a gear from the early part of the year, hinting that recovery, at least in some countries, may be about to take off.
A slow but sustained reversal in the long decline in consumer confidence coupled with manufacturer incentives are helping sustain healthy West European car market activity. The model renewal process, which has seen the average age since launch of available new cars fall steadily to a near-term low coupled with the ever-present consumer appetite for the most modern designs and technologies, is also helping generate new car sales. And low interest rates are making for still cheaper purchases. While most of these factors appear sustainable, the one that, at first glance, does not is car manufacturer purchase incentives. Yet, the duration of incentives has long been seen as a potential future weakness in the North American car market where history tells us that good deals, however costly to the manufacturers, have greater staying power than many would have at first believed.
On the negative side, with unemployment still rising and economic recovery unconvincing in many countries, there are plenty of reasons for buyers to hold off. The volatility in the market over the past few months is a symptom that positive and negative effects are closely matched at the moment – it could also be interpreted as evidence that any further improvement in consumer sentiment will be a trigger towards sustained recovery. There is also a major negative which should not be forgotten – a necessary downward correction in the UK market, from its current position of historic strength, could wipe out substantial gains made in other markets and depress the European total – but at the very least, recent trends are lending hope to the possibility of recovery.
Pan-European light vehicle sales are enjoying something of a recovery from weakness earlier in the year with a selling rate of over 17.5 mn units/year – this grouping not only includes Western and Central European car markets but also those of light commercial vehicles with GVW (gross vehicle weight) below 6t.
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.
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While the UK car market was the largest in September, as is often the case
under the existing seasonal pattern, the German market will continue to represent
the biggest annual market in Western Europe and so its performance, even in
a month when sales are not the highest, will be of major importance. On these
grounds, the German September sales result could be viewed with cautious optimism
in the context of West European car sales. The very weak selling rate in Germany
in early 2003 has improved slowly throughout the year and, in the third quarter
averaged almost 3.3mn units/year. Manufacturer incentives appear not to have
had the strongly positive effects that they have in some countries, but the
timing of gradual gains in consumer confidence indicators appears to coincide
with the rise in sales, hinting that sustainable gains in consumer sentiment
will translate into sustainable car market growth.
The UK continues to be a source of historically strong demand but, given the high level of sales a year ago, the contribution to the European year-on-year total was in fact negative. September is, of course, a month when UK sales make a disproportionate contribution to the European total owing to seasonal differences as buyers seek to take advantage of new issuance of the date identifier on their new cars (another such month is March). The 2.5+mn units expected for 2003 will come in only slightly lower than the record 2002 making this year the second best on record – it raises the prospect of a reckoning in the future if private consumers, who are driving the current strength, lose confidence, or if a weakening in sterling forces prices up.
Italian sales were perhaps the most surprising of all. The ending of a government incentive and the continued economic malaise, with unemployment rising and disposable income being eroded, are not exactly supportive of rising vehicle sales. Nonetheless, sales rose by 7.5%, based on preliminary figures, in what looks likely to be a ‘blip’, given that incoming orders data do not paint a particularly rosy picture. They showed only a mild improvement in September on the weak level which has persisted since April.
The September market in France was good on all measures: not only was it better than the same month last year but also in the two preceding years; and the selling rate, at 2.16 million units, was the second best in the year to date. Furthermore, worries resulting from the severe weakness of sales in August have been assuaged a little, albeit by aggressive incentives from manufacturers which helped produce the high September result. However, year-to-date figures remain markedly down thanks to weakness earlier in the year so, with France being a relatively important market in Europe, the negative impact from the French market in absolute volume terms is currently larger than for any other country.
The Spanish market continued to grow in September – worries caused by the drop in the selling rate earlier in the year are being dispelled and a real resurgence in demand may be beginning to take hold. Over the first eight months of the year the small rental sector had been providing most of the growth, while sales to other consumers had been below year-earlier levels. In September, however, it was growth in consumer sales which really took off and pushed the market strongly upwards. Despite this growth in non-rental sales, the year-to-date total has only just pulled level with the year-earlier figure. Manufacturer incentives are once again understood to be a major driver of sales.
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Of the smaller countries it is the tiny market of Greece which stands out in
September by making the biggest negative contribution in year-on-year terms.
However, this is not reflected in year-to-date figures: note that September
2002 was very strong so future year-on-year comparisons are unlikely to be so
damning. On the positive side, Finland also continues to punch above its weight
in its contribution to year-to-date sales, although September alone was less
impressive.
