First half sales in the European car market were almost flat on last year, but the month of June saw an up-tick that appears to be founded on incentives activity built around half-year targets. The UK market, in particular, put in a sprightly retail sector performance. Italy also saw a rebound following supply disruption in May. But after a strong June, the market could weaken in July. This analysis is from JD Power-LMC.
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Summary
- June was a strong month for car sales in Western Europe as sales rose by 4% year on year and seasonally adjusted annualised sales topped 15.2 mn units/year.
- Incentives played a major part once more – it was half-year targets which are thought to be behind this. We should expect a more modest result in July.
- Among the five large markets Spain, the UK and Italy stood out as being the stronger performers. The latter market recovered strongly from a very poor May result.
- France did not disappoint either, though the selling rate was only slightly up on the level in the year to date. German sales did not impress.
Year-to-date sales in the West European car markets were almost level with year-earlier totals at the half-year point thanks to an impressive June out-turn – up 4% year-on-year – which compensated for the last two rather undistinguished months. Calendar effects do not explain the strength in June 2005 compared with 2004 since there were the same number of selling days in each. Incentives appear to have played a major role in some markets with UK sales, in particular, enjoying a solid retail rebound. This should have a rather predictable consequence in July, with sales being a little less impressive. The Italian market bounced back from a terrible May result which had been the consequence of strikes that interrupted new vehicle supply. Once the strike ended and channels were opened again many of the delayed deliveries took place in June – July should also benefit from this effect.
West European Car Sales
The chart above 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 June, compared with 2004.
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Car sales in Germany marked one of the least impressive results in Europe from a seasonally adjusted annualised perspective – the selling rate fell to just 3.16 mn units/year (at the first estimate). This rather disappointing result does very little to alter our general expectation that sales this year will only match the level of 2004. One thing, however, that could have some impact is the upcoming general election which, if all goes to plan, will take place some time in September. Persistently poor consumer confidence lies at the root of the slide in German sales and a new government offers some hope that at least some of the gloom may be lifted.
UK sales were surprisingly strong in June and most signs point towards strong incentives as being responsible. The alarming slide in retail sales came to a halt again in June – as was the case in March when incentives were last brought out in force. But the falls in UK consumer confidence and spending may be a trend that strong incentive offers can only slow rather than turn around completely. Sales to businesses remained, as has been the case for some time, reasonably solid. But we retain our view that, despite occasional upturns in sales produced by strong incentives, the market is likely to fall by something in excess of 5% this year.
In Italy, after a dire result in May, sales rebounded strongly. The 1.6 mn units/year selling rate in May was followed by a hugely improved 2.6 mn units/year rate in June but, despite the apparent differences in the two months, May’s weakness became June’s success. May was depressed not because demand had fallen sharply – it had not – but because a strike interrupted deliveries of new vehicles. Once the strike ended the deliveries commenced at an accelerated rate. What’s more we judge that not all of the backlog has been cleared so July may also be boosted. Beyond this temporary situation the outlook remains rather poor with a struggling Italian economy unlikely to deliver an increase in sales this year.
French sales continued the steady improvement we have seen throughout the year as evidenced by the fact that the average selling rate in the first six months of the year is over 5% higher than the total sales in 2004. If this level of sales an be maintained – and we think it will be – then sales should keep that advantage and a near-5% increase in the market looks possible.
The Spanish market was once again very strong with a result that supports our expectation that sales will reach a new record this year at over 1.6 mn units. Both retail and rental sales were up (year to date) on last year’s levels and, though consumer confidence is beginning to ease, the outlook remains good. The continuation of the Prever scrapping incentive is, however, a prerequisite to continued strong sales beyond 2005.
Among the smaller markets Greece continues to be the worst performing while Ireland is enjoying a very solid recovery.
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