It was widely expected that for the Western European car market the final month of 2005 would see a repeat of the strong sales recorded in December 2004, driven by incentives. But the incentive boost turned out to be a lot weaker than expected, especially in France and Germany, with full calendar year sales turning out slightly down on the previous year at 14.63 million units. However, the upside of a weaker than expected December may be that there is less sales payback early in 2006. This analysis is from JD Power-LMC.
Summary
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- In Western Europe, car sales fell back 4.3% year-on-year in December although the selling rate was still high at 15.7mn units/year. The results for the final month of the year meant the region managed a very similar total in 2005 compared with the previous year.
- German registrations in December were solid, with incentives here, as elsewhere, evident in the final month of the year. Italy and Spain also managed strong finishes to the year, while the selling rate in France was in line with the actual 2005 total.
- The UK selling rate was much stronger last month following a relatively weak October and November, although December’s strength failed to stop the market falling some way for 2005.
For December, the seasonally adjusted annualised selling rate was comfortably higher than in the preceding two months, it standing at 15.7mn unit/year. This end of year lift, while still incentive driven, was not as marked as in 2004 although the market overall for 2005 was in the end flat, year-on-year. German and French car sales do not appear to have received major incentive boosts in December, with the implication that the payback in the opening months of 2006 will not be as harsh. For the 2006 full year, we forecast a similar sales total in the region to last year.
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 were the same number of selling days in December, compared with 2004.
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The December result in Germany came in a little below our expectation. The selling rate of 3.45mn units/year for the month was higher than that of November, as had been expected given the assumption of a boost from OEM incentives. This boost was anticipated to be larger though, and, as it was not, this implies that the destocking taking place in Q3 and Q4 has taken the supply side pressure off the industry, allowing manufacturers to gain more control over pricing. Bearing the December result in mind, we have adjusted our forecast for the opening months of 2006 up a little given the payback in the early months of 2006 will be less acute. Overall, this year will see another modest rise in sales following that of 2005, with a stronger end to 2006 as sales are pulled forward prior to the 2007 VAT change.
After a couple of decidedly weak months for the UK car market it was to be expected that December would be conversely strong given that manufacturers would implement further incentives to take some of the edge off the market fall for the year as a whole. The market was in fact 8.7% higher year-on-year in the most recent month, with the selling rate climbing to 2.97mn units/year. However, a less rosy picture is painted when looking at 2005 overall, with the market some way down on the previous year given the weakness of retail sales (even December’s strong climb was only attributable to strong sales to business). In 2006 a further decline is expected.
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By GlobalDataThe Italian market posted its strongest selling rate for 2005 in December but even though the second half of the year was much stronger than the first (the average selling rate in H1 stood at 2.16mn, while it was 2.42mn units/year in H2), the 2005 out-turn was lower than that of 2004. Things do not look any better for 2006 either and with a lack of significant improvement from key economic drivers, a small contraction in sales is again expected.
In France, a selling rate of 2.06mn units/year in the final month of 2005 was only marginally short of the out-turn for the year (2.07mn). The reason the French market managed to eclipse the 2004 full-year total was a stronger performance in the first half – the average implied selling rate of the July-December 2005 period was just 2.01mn units/year, the level achieved in a less than impressive 2004. The lacklustre pace of the last few months suggests that as we head into the opening months of 2006 the market will remain fairly subdued. Overall, we expect at best only a small rise in 2006, still disappointing by historical standards.
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Likely to be helped by both OEM pricing incentives and some further release of pent-up deliveries coming after a strike-hit October, December proved to be the best month of 2005 in Spain in terms of the selling rate, this standing at 1.78mn units/year. The strong sales growth of Sports Utility Vehicles was again a feature in the most recent month, as has been the case for the year as a whole. The December result confirmed that the Spanish market had managed to set another sales record in 2005, beating the previous record set the year before. For 2006, strong sales are again on the cards, although some moderation is likely.
Among the smaller countries, Denmark and Ireland managed solid gains in 2005 while Greece and the Netherlands struggled.
