After a strong end to 2002, January produced the smallest crop of car sales in Western Europe of any January since 1997, about 7% below last year’s level. The seasonally adjusted annualised selling rate (SAAR), at 13.7 mn units/year, was also the lowest for five years. Continued weakness in German car demand can partly be blamed on uncertainty about plans to raise company car taxation. But in Western Europe as a whole, the weakening economic situation, rising unemployment and falling consumer confidence are enough to account for most of the decline in car sales.


Summary:




  • After the best month ever…the worst in five years. The policy-induced instability of the Italian market lies behind the exceptionally violent fluctuations in European car sales. But, in the rest of Europe also, the start of 2003 has brought a very clear weakening in vehicle demand.
  • The German market has weakened once more. Here too, policy is partly to blame, as buyers remained unsure what level of tax they would have to pay on company cars.
  • Elsewhere in Europe, the decline simply reflects the unpromising economic environment, and a recent deterioration in consumer confidence.


Both December and January are months in which seasonal factors have a strong influence. In many countries, buyers wait for the new year, since the year of first registration influences the residual value of the vehicle. The usual reluctance to acquire vehicles in December was over-ridden last month by specific tax changes in Italy and the Netherlands, and also by what appears to have been very aggressive marketing throughout Europe, as manufacturers and dealers sought to achieve their annual targets. In interpreting the January result, the key issue is whether it merely represented the predictable hangover from December’s sales feast, or whether it brought new information about the state of vehicle demand.


This question has to be answered on a country-by-country basis, which we attempt to do below. In summary, the decline in January was not quite large enough to cancel out the inventory-reducing effect of the December bonanza. As we mentioned last month, December delivered an extra 100,000 sales – to be precise 106,000 more than the previous year’s level. January’s shortfall from the previous January amounted to about 90,000 sales. There is still a small net gain, taking the two months together. Similarly, the average selling rate over the two months, at 15.4 mn units/year, was above last year’s 14.6 mn units outcome.


Although not all of December’s gains in Italy and the Netherlands have evaporated, the January result did provide some negative information about the state of demand in three major countries – Germany, the UK and France. In all of these the selling rate fell back significantly. Overall, the seasonally adjusted annualised rate of 13.7 mn cars/year was worse than any month since late 1997. Similarly, the unadjusted figure was lower than any January since 1997. The 6.8% fall in car sales in Western Europe becomes a decline of about 6.2% if one includes the applicant countries of Central Europe and Turkey (where year-earlier sales were exceptionally low), and about 6% if one also includes light commercial vehicles.


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 month had an identical number of Saturdays and Sundays as last year, so calendar effects were neutral.







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Uncertainty about company car tax continued to throw a shadow over German sales in January. The ruling coalition’s poor showing in state elections increased yet further the difficulty of getting the proposal through the Bundesrat, but there is still considerable fear among buyers that the measure may be implemented, even if to a smaller extent than originally proposed. Analysis of the final quarter’s data shows that the more expensive vehicles that tend to get chosen as company cars fared particularly poorly, and there is every likelihood that the same factor contributed to the poor outcome that we expect to see when January is reported. We expect the selling rate to come out at 3.1 mn units/year, a little lower than the already disappointing SAAR in December. After a relatively strong period in late summer and early autumn, the recent trend in demand has again turned negative, and the January outcome could even be the lowest January figure since 1990. Consumer confidence did not deteriorate further in January – in fact the reading was marginally better than December’s – but the strategic fact is that it remains very depressed, and there is nothing in the recent news (including the further jump in unemployment reported on Feb 5th) that would make buyers more inclined to purchase new vehicles.


We have seen plenty of “false dusks” in the UK sales figures, which seemed to herald the long-expected end to what has been a phenomenal boom in car demand. So we would be cautious about reading too much into the January figures. Last summer, it appeared that demand was slowing, and in the event when the key September month arrived, consumers again surpassed industry expectations. However, taken on its own, the only interpretation that can be put on the January figure is that it was a return to something more like normality after the exceptional December figure. The fall in fleet sales was much steeper than that in retail sales. The SAAR of 2.3 mn is still one which would have been considered very strong in any year before 2001, though it was exceeded in each of the last two years.


During the first six working days of January, there was no government incentive scheme in operation in Italy. Buyers who purchased at that time must be feeling irked, and the industry bodies hope that the government will take measures to compensate them. A new scheme, whose validity currently extends until the end of March, was then brought in. This may well have left many of those who were stampeded into buying 100,000 additional cars in December (before the previous scheme expired) also feeling that they needn’t have bothered. To interpret the January number, one simple-minded (but not misleading) approach is to recall that sales were about 65,000 units above the year-earlier level in December, but less than 40,000 units below the year-earlier level in January. So there are still some net gains left. However the order intake data is not particularly encouraging – by our estimation, the backlog of unfilled orders is getting back to where it was before the incentives were introduced in midsummer.


The French results were perhaps the most undistorted of all the major countries, but that did not make the outcome any more encouraging. The selling rate, at under 2.1 mn units/year, continued on the downward trend that had prevailed for most of last year. Consumer confidence took a sharp turn for the worse during the month. Consumers’ attentisme, or wait-and-see attitude, was the word stressed in the CCFA press release and picked up in much press comment. We are a little sceptical about the influence of geopolitical developments on buyer behaviour, but some consumers may indeed have been awaiting new models. However, the performance of the French market makes good sense in terms of the macro-economic background. Further explanations may be redundant.


Demand was fairly stable in Spain, another country which does not seem to have suffered distortions to demand either in January or December. The selling rate has remained remarkably stable, at just over 1.4 mn units/year, for the last half year or so. In the context of a slowing economy and weakening consumer confidence, this is a rather positive outcome. However, the January data show that once again the rental market made an important contribution to this outcome.


Among the smaller countries, Portugal again showed evidence of increasing weakness in demand. At the other extreme, in every sense, were Sweden and Finland, which were unusual in having an abnormally weak sales volume in December, followed by a rather strong outcome in January. Irish sales tend to be strongly concentrated in the opening months of the year, and the outcome there was relatively strong. Finally, although we still do not have full-month data for the Netherlands, data for the first part of the month do not show any of the weakening that might have been expected, following the rush of December sales induced by the changes in taxation of small cars.


Note: In the first month of the year, the year-to-date columns of the table below are redundant. In the interests of continuity, we have left them in.








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