December new car sales in Western Europe were down by 4.3% on the previous year, but that result was heavily distorted by a strong December 2002 result in Italy. According to analysts LMC-JD Power, if Italy is excluded December’s result would have been 3% higher than a year earlier. For the year as a whole new car sales in Western Europe turned out to be 1.7% below 2002’s level. That result is better than many would have expected at the beginning of the year and confirms a gathering second half recovery after weakness in the early part of the year.
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“The West European car market recovery remained on course at the end of 2003, despite the weakness implied in the year-on-year drop: December 2002 set a new record for that month so almost any comparison was likely to be unflattering. On a seasonally adjusted annualised basis, the car sales continued to improve – and the recent gains in consumer confidence in Western Europe combined with the strong starting point for 2004 bodes well for the coming year,” said Pete Kelly of J.D.Power-LMC in Oxford.
“Car sales in 2003 fell by just 1.7% in 2003, using preliminary data, beating almost all expectations, as manufacturer incentives combined with low interest rates and a nascent economic recovery in the second half of the year to hold sales up.”
Summary
- Preliminary estimates reveal that the West European car market fell by just 1.7% in 2003, a much better result than many had feared at the start of the year – the total stands at 14.3 mn units.
- The seasonally adjusted annualised rate of sales gained in strength in December leading to the best selling rate for the year at 15.13 mn units/year. Most of the strength in the selling rate came from Spain, Italy and UK while, from the smaller countries, Finland continued to make a most impressive positive contribution. In year-on-year terms sales were down by 4.3% as a result of an abnormally strong result in Italy in December 2002.
- December German sales were disappointing, especially after the rebound in the selling rate in November. The outlook for 2004 remains relatively positive though we do not expect strong growth in sales in the immediate future.
- There was a small recovery in France after a very weak November though the 2.07 mn units/year selling rate was little better than the full-year 2003 total of just over 2 mn units – a 6.3% fall on 2002.
Preliminary readings of the December West European car market indicate that sales in 2003 suffered only a small 1.7% decline when compared with 2002. This is somewhat better than many, including ourselves, had expected at the start of the year. The strong negative influences in early 2003, in particular slow or absent economic growth and war fears, dissipated later in the year – while car manufacturers also took it upon themselves to prevent the falls that looked likely from happening by offering incentives in most countries. The effect has been most pronounced in Spain where the market grew by over 4% (+60,000 units). The relatively tiny Finnish market also weighed in with an impressive 26% rise in sales as taxes on cars were cut. The UK turned in another stunning market of 2.6 mn units. Such upbeat demand helped offset the worrying decline in the French market and the fallout in Italy as payback struck at the beginning of 2003.
The December figure was down by 4.3% but the negative sign on this result can mainly be attributed to the very strong sales in Italy in December 2002, which were not likely to be repeated in December 2003 (see below) – if one considers Western Europe without Italy the market would have expanded by almost 3%. Furthermore, the selling rate rose and narrowly notched up the highest rate in 2003, at 15.13 mn units/year. The slowly improving economic backdrop, coupled with this strong starting point augurs well for 2004 and sales are expected to rise by around 2%.
Pan-European light vehicle sales, including cars and light commercial vehicles with GVW<6t across Western and Central Europe, were down by -0.9% in full-year 2003, at 17.2 mn units, compared with 2002.
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 December of 2003 was one greater than in December 2002.
The German market continued to surprise and December looks likely, on initial estimates, to be somewhat lower than had been expected. The selling rate fell back from the November level to just over 3 mn units/year – a disappointing result by most measures. Other important indicators continue to point in the upward direction. Consumer confidence fell back in December, though it remains significantly higher than during the previous 12 months, with the exception of a very good result in November. In general, the message from the December result is that the recovery in Europe’s largest market may be at risk of being dogged by setbacks for some months to come, though we still expect that there will be growth in sales in 2004.
In the UK, just as the rate of sales started to slow down from a furious pace set during the summer months, a December result came in which produced one of the highest selling rates on record, at 2.9 mn units/year. It remains a possibility that the UK market is undergoing further seasonal changes which may have led us to overestimate the selling rate (after all December 2002 was also very strong indeed) – however, the fact that 2003 was such a good year means that the explanation probably owes more to the continued strength in consumer confidence and good deals offered by the car manufacturers at year end than a shift in the seasonal pattern.
The improvement in the selling rate in Italy was profound in December: this can be seen in the table below by comparing very strong 2.79 mn units/year selling rate for December with the full-year total next to it (2.29 mn units/year). The year-on-year drop in sales in December was still quite pronounced reflecting not weakness in December of 2003 – as we have noted, this was a very strong month when assessed on a seasonally adjusted annualised basis – but instead shows that December 2002 was stronger still. This was a result of the powerful effect of the withdrawal of government incentives at the end of 2002 which pulled sales forward very strongly into December of that year.
The selling rate in France edged upwards a little in December, taking total sales to over 2 mn units for 2003 in total. It was not an especially strong month in the year to date, though some are taking it that way, with the selling rate only fourth highest in 2003. It marked a gain of 0.6% on the December 2002 total (which, it should be noted, had one fewer selling days and resulted in a higher selling rate in December 2002 than December 2003). Consumer confidence remains weak going into 2004 and we do not expect a rapid recovery.
Spanish sales remained strong in the final month of the year, though the pace eased from the robust selling rate which characterised the previous four months. New car buying activity related to the recently extended Prever incentive remained strong while sales to both private individuals and businesses, and also to rental companies, grew in year-on-year terms. The slight cooling is expected to continue going into early 2004 though sound economic fundamentals bode well for sales beyond the short term.
Despite a large drop in the selling rate in Finland in December (compared with the previous few months) year-on-year growth remained strong at 40% – and this country wins the trophy for the most improved market for full-year 2003, up 26% relative to 2002. In absolute volumes its small size means that Spain made the largest positive contribution to overall West European sales volumes in 2003 with sales rising by 60,000 units. Irish sales fell sharply in December as registration tax increases hit demand while in Holland the recessionary economic conditions there continued to blight the market.
