Some people have been expecting the European car market to stay strong, in the second half of this year, as inflation subsides and tax cuts fuel consumer spending. Others have been expecting the opposite, given that the European economy seems likely to have ground almost to a halt during the second quarter, in the face of the global economic slowdown. The July figures, to say the least, provide little evidence for the latter, more pessimistic view.

The selling rate was once more close to 15 mn units/year during the month. Exceptionally strong figures were recorded in France, for the second month running, and also in the UK, though the hitherto robust Italian market is beginning to show what could be the first signs of weakening. Spanish sales remained consistent at the strong rate seen for the last four months. The comparison with July last year will certainly show an increase, which we currently put at 3.4%. The cumulative change for the first seven months (which account for almost two-thirds of annual sales, given that August and December are seasonally weak) now shows a rather modest decline of 1.2%. The July selling rate of 15.0 mn was slightly in excess of the average rate for the year-to-date. If one focuses on total light vehicle sales, the year-to-date change shows a decline of some 1.4% for Western Europe, and 4% if one includes countries that are to join the EU in due course.

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 moving average of these. We indicate the latest two months. The most recent numbers underlying this chart are appended in a Table at the end of this note.

The results from Germany look like being surprise-free. At this stage, we are expecting an outcome of 275,000 units of car sales in July, which would translate to a selling rate of 3.2 mn units, slightly lower than the 3.3 average for the year to date. This would be fractionally lower than last year, and while there is some margin for error still in the July estimate, there is less in the year-to-date figure, which will show a fall of some 2.5% in the first seven months of the year. The June figure had been confirmed by the KBA at 302,643, rather higher than our preliminary estimate, and also representing a selling rate of 3.2 mn units/year. The trend selling rate has remained very static at that number for the whole of the year-to-date, and there is at present nothing in the incoming orders data that gives much hope of an early change.

The French market remained exceptionally strong in July, with the CCFA reporting a total of 208,463 car sales, which equates to a seasonally adjusted selling rate (SAAR) of 2.4 million units, in line with the strong June figure. Prior to 2001, consumer confidence and the SAAR had tended to move in line with each other. This year, too, they have been closely correlated – but in a negative sense. Each month this year, consumer confidence has declined; each month the SAAR has gone on trending upwards. Clearly there is something anomalous about this situation. However, with only five months left to report, and with every indication that seasonality has changed in a way that diminishes the importance of those months, it is easy to understand why the CCFA is continuing to expect a full-year total of 2.2 mn units, not far off the 1989 record.

Provisional estimates supplied by the Italian Ministry of Transport report 218,200 car registrations in July. This equates to a SAAR of 2.26 million units, the lowest level this year, indicating that, after its recent sustained strength, the Italian market may now be more vulnerable. Reporting the figures, ANFIA noted that sales have been supported by aggressive incentives, and by price increases which came in at less than inflation, despite enhanced specifications. It is also clear that “Km zero” – i.e. pre-registered – sales have been rising, from 4.7% in the first half of 2000 to 6.8% this year, according to InterAuto News. In an interview in the same journal, Fiat Marketing Director Diaz Ruiz likens Km zero sales to an aspirin, so it is clear that the headache of sustaining the current level of demand is getting a bit worse. Italian consumer confidence remains high, actually rising 2 points in July, against the more general European trend. Diesel car sales continued their rise, accounting for a record 37.6% of sales in July. UNRAE expects this upward trend to continue, especially given that the backlog of unfilled orders show a still higher ratio of diesel to petrol car sales. There is slight evidence of weakening in the level of incoming orders in July, and the order backlog is falling. However, neither of these trends is so pronounced as to suggest spectacular changes in the selling rate in the near future. ANFIA’s press release indicated their expectation of 2.2 mn sales in 2002.

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UK car demand stayed exceptionally strong in July. The market continues to be driven by the strength of demand from private buyers, whose purchases from UK dealers, as reported by the SMMT, rose by 21%. At the same time, this is no longer being offset, as it was earlier in the year, by slower sales to companies. Institutional sales were up by about 3% in the month. This strong level of demand reflects increasing confidence: the consumer confidence indicator rose further during July. These strong sales come just a couple of months before a further change in the numberplate system, and it might have been expected that some buyers would have wished to hold off until September, when they will get a vehicle which will be more readily identified as new. The fact that, despite this, a selling rate which we estimate at 2.46 mn units/year was again achieved, very close to the rate that we saw in the previous month, testifies to the continued buoyancy of UK consumer demand. The quarter-point cut in base rates announced early in August will have added still further to that buoyancy – though increasing gloom in the manufacturing sector could eventually conspire to undermine it.

Spanish sales continued to be as strong as in the recent past. All of the last four months have produced selling rates of close to 1.58 mn units/year. Total sales of cars and sports utilities came to just over 170,000 units, representing a gain of nearly 8% on the previous year, and bringing the cumulative year-to-date increase to 1.5%. This represents an all-time record for monthly Spanish sales. All of the gain was due to higher demand for vehicles other than sports utilities, demand for which remained weak. Of this 1.5% cumulative gain, ANFAC estimates that 0.5% is due to stronger demand from private buyers, which has been recovering in the most recent months, while the remaining 1% is due to higher sales to institutions and rental companies. This latter consideration indicates some vulnerability. It is also noticeable that, while the car market remains a little in excess of the year-earlier level, consumer confidence has fallen away quite sharply over the same period.

Among the smaller countries, there was some bounce back in the Portuguese and Greek results, while the Netherlands and Belgium also produced very solid figures. Sweden, however, suffered an exceptionally weak month. The pan-European figures are still weighed down by exceptionally large year-on-year cumulative declines from Turkey and Poland.

Oxford, August 7th 2001

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