November car sales in Western Europe were down by 2.3% at 1.05 million units. “While sales were slightly down in year-on-year terms, it should be remembered that November 2002 was a fairly strong month with an extra selling day. On a seasonally adjusted basis, the two results are closely matched indicating that sales have continued to recover from early-year weakness,” said Pete Kelly of J.D.Power-LMC.
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- The seasonally adjusted annualised rate (SAAR) of sales hit 14.6 mn units in November, a shade lower than the rate during the same month last year, but a significant improvement on the early part of this year. Sales fell by 2.3%, year-on-year, to 1.05 mn units.
- While another month has passed, the geographical picture remains rather similar to October: sales in Spain and the UK were still very strong while sales in France were weak. The market in Italy continued to stabilize.
- The blip in Germany in October appears to have passed and the tentative recovery which had been in evidence for much of 2003 looks to be back on track.
It is increasingly clear that the West European car market is improving. The selling rate remains significantly above the weak level of the first quarter when the rate was just 14 mn units/year. Manufacturer incentives and a slowly improving economic backdrop have helped pull sales out of the trough and the last six months has been characterised by a level of demand broadly in line with the November figure.
Manufacturer incentives were not cited quite so regularly in November as an explanation for strength in vehicle sales. This does not mean that they have gone away, or have been reduced to former norms, but indicates that in many countries sales are being driven by more conventional demand drivers, namely consumer spending. The steady gains in readings of consumer confidence continued in November and expectations are that this will follow through into 2004 with positive implications for car demand.
Pan-European light vehicle sales, including cars and light commercial vehicles with GVW<6t across Western and Central Europe, were down by -0.7% year to date with a selling rate of 17.6 mn units/year in November.
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 number of selling days in November of this year was one fewer than in November 2002.
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At first estimates demand in Germany returned to the growth path after a blip in sales in October. November’s 3.41 mn units/year selling rate marked the second strongest monthly sales in the year to date (September was a little better at 3.47 mn units/year) – actual volumes were 1.3% up on the same month in the previous year. In itself this does not appear especially impressive but when one makes a comparison with the first half average selling rate of 3.22 mn units/year it is clear that there has indeed been some progress on the recovery path. Consumer confidence made more gains in November, rising to the highest level for over a year. If this trend continues, and we see little reason why it should not, the outlook for 2004 will be relatively positive – it should be noted that while the trend in consumer confidence is upwards, it is from a low base.
November was yet another strong month in the UK and it was the private buyer who continued to boost sales; small business sales were also strong. The 2.5 mn units/year selling rate, while somewhat reduced from the very high figures in the summer months when 2.7 mn units/year was achieved, is still strong in a historical context. While we believe that a downward correction must come about sooner or later, a continuation of strong consumer spending growth could support strong sales for a little longer. However, the Bank of England’s rate increase is just one reason why sales may begin to ease in 2004.
Sales in Italy, while down by a substantial 7% on November 2002, indicated that demand was holding steady, following the major disruptions to sales in early 2003. Also, the comparison with November 2002 is not really a fair one since the ending of a government incentive scheme was driving sales strongly upwards in late 2002. So, despite the ending of this incentive scheme and an economic slowdown, the 2.4 mn units/year selling rate for November is remarkably close to the average for the past few years. Italian sales jumped to a plateau in the 2.3-2.4 mn units/year range in 1997 and have not deviated from this position by very much at all, until the last 18 months when the weakening in both consumer spending growth and consumer confidence have been concurrent with the softening in car demand.
The result in France – a selling rate of just over 1.9 mn units/year – was disappointing, even by recent standards of underperformance. It means that the market may be lucky to scrape to 2 mn units for full-year 2003, almost 7% down on 2002. Poor consumer confidence held back demand in November and is likely to continue to act as a drag on sales of new cars as we move into 2004. Economic prospects in 2004 hint that we should expect more of the same for much of the coming year.
The Spanish market enjoyed strong sales in November, consolidating the very good results in September and October – the average selling rate for these three months was a historically high 1.58 mn units/year. There has been some stimulus from the expectation that the government’s Prever incentive scheme would end in December. In actuality, the government announced, in late November, that the scheme would be extended for a further 12 months so we expect incentive activity to ease back in December. The size of the pull-forward in demand should also be quite small. Rental sales continued to fall away in November, at least when compared with last year, while the core market of sales to businesses and private consumers surged.
Of the smaller countries, Finland continued to perform very strongly and, year to date, has accounted for a disproportionate 26% of positive contributions to the West European market. Early indications are that Holland will suffer another very weak month in November resulting from the ongoing recession.
Pete Kelly (pkelly@lmc.co.uk, +44-1865-791737)
Oxford, December 5th 2003
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