Sales
of new cars in Western Europe strengthened in June, at a seasonally adjusted
annualised selling rate (SAAR) of just over 15 mn units/year. With data for
half of the year now in, the underlying trend in the West European car market
can be seen to have remained essentially static, at a selling rate of around
14.8 mn units per year, for the last nine months, though with some hints of
an improvement in the most recent months.

The year-on-year comparisons have been showing smaller negative numbers as
2001 has progressed, but this reflects the fact that the selling rate was declining
in the first half of last year, and doesn’t tell us anything about this year.
As the Table below shows, sales were down 1.8% in the first half year. For June
alone, the year-on-year comparison shows a gain this year of nearly 6%. This
partly reflects the fact that, in most countries, there was one less public
holiday in June this year, but, more importantly, it also testifies to the continuing
strength of demand in four of the five major countries – France, Italy, the
UK and Spain. The German market had another weak month (cancelling the promise
of an improvement that was there in the May result). Leading indicators such
as incoming orders do not suggest any imminent major change from the current
selling rate in these large countries.

For all light vehicles, including light commercial vehicles, the year-on-year
decline in Western Europe was slightly larger than for cars alone, at an estimated
2.2%. If one includes the countries applying to join the EU, the decline in
the first half year comes to just over 4% for cars only, and just under 5% for
all light vehicles.

Starting with this report, we have changed our mechanism for adjusting for
seasonal and calendar differences. We now count all days other than Sundays
and public holidays as selling days. We find that this removes more "noise"
from the data than our previous method, which counted only Mondays to Fridays
(other than public holidays) as selling days. Naturally, the strategic picture
remains unchanged by this, but the May result does appear in a more favourable
light under this definition.

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.

May sales in Germany came to 330,325, which was a relatively strong result
given the extra public holiday. We expect the June figure to come in at around
290,000 units, which represents a slump back to a very weak selling rate of
3.1 mn units/year. German national accounts data show that purchases of cars
accounted for just under 5.5% of consumer spending last year, a sharp drop from
over 6.2% the previous year. Of this decline of 0.8% of the total, only 0.3%
was needed to pay for higher motor fuel costs, leaving a sharply reduced share
of transport spending overall. This reluctance to commit money to car purchase
has evidently persisted in the first two quarters of this year. Some uptick
in incoming orders has been reported, but this could reflect anticipation of
already-announced future price rises, and may therefore be a pull-forward effect
rather than a change in the underlying trend. Economic news from Germany remains
very negative, with yet another rise in unemployment recently announced, but
the current level of car purchases seems appropriate to an economic climate
that is even more dismal than the one that actually prevails.

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The CCFA reported 220,401 French car sales in June 2001, 20% higher than last
year. This is an exceptionally good result, though hard to interpret. Until
1999, cars bought from July onwards were given a later model year than those
sold a month earlier, and as a result June was one of the weakest selling months.
Last month’s strong result seems to indicate that June has now switched from
one of the least favoured months for car purchase to one of the most favoured
ones, and that the result for June last year may not have been a good guide
to how the new seasonal pattern of sales will settle down. With so much uncertainty
about the seasonally adjusted selling rate, which we tentatively assess as 2.45
mn units/year in June, the one rock-hard fact to hold onto is that total sales
in the first half of 2001 were nearly 7% higher than last year. Manufacturers
have reported that sales to individuals are faltering, but the total is being
sustained by strong purchases by corporate buyers. The Journal de l’Auto reports
that dealerships are doing less business, and speculates that manufacturers
with excess supplies of petrol-engined cars are offloading these to rental companies,
which may cause problems further down the road, when these cars hit the second-hand
market. The strong outcome for car sales coincides with gloomy news in terms
of the consumer confidence index reported by the European Commission. It shows
confidence falling continually during 2001 to -5 in June, from a peak of +4
in January – a trend which does not bode well for future car sales. At the same
time, the downward trend in unemployment seems to have faltered.

Car sales in the UK rose by an impressive 11% in June. This corresponds to
an exceptionally strong seasonally adjusted selling rate (SAAR) of just under
2.5 million units/year. The auto market is getting the full benefit of buoyant
consumer confidence, which rose strongly last month, supported by rising property
values and a strong labour market. Most of the increased spending by consumers
this year has been funded by a fall in the savings ratio, as well as via an
increase in borrowing – both of which are not sustainable indefinitely. Private
sales of new cars continued their upward trend in June and now account for just
under half of all new car sales. Sales to corporate buyers rose by 2.9% in June
– the first positive year-on-year change this year, leaving the cumulative total
down 7% in the first half-year. As is the case in the rest of Europe, the diesel
share continued to increase in June, up 36% on the same month a year ago to
just under 37,000 units. This means that diesel sales this year accounted for
approximately 16% of all sales, up from 14% for the same period last year.

The Italian Ministry of Transport provisionally estimates that car sales increased
by 10% in June 2001 compared to last June, coming in at 219,200 units. As is
often the case, the year-earlier comparison reflects some distortions that affected
last year’s figure. That said, the result is still strong: the selling rate
in June, at 2.4 mn, was exactly in line with the average of the earlier months.
The share of diesels increased in June to 35.9%, in line with the general trend
seen across Europe. New orders received by car dealerships held up well, suggesting
that car sales are not about to collapse. Consumer confidence remains relatively
strong, and the number of people indicating that they intend to purchase a new
car during the next two years has remained stable for the last three months
– a further indication that sudden changes in the selling rate are unlikely.
This confidence is underwritten by employment growth, which has remained strong
in Italy, with no sign of the deterioration in the labour market which hit Germany
at the start of the year, and more recently seems to have affected France.

Spanish sales continued to be very strong. The selling rate has now been close
to 1.6 mn units/year for three months. The Prever plan, which expires at the
end of next year, has undoubtedly contributed a great deal towards sustaining
Spanish demand. ANFAC reports that sales benefiting from this scheme during
the first half year were almost 25% higher than last year, following the change
to the rules at the start of this year. In June, it appears that sales to rental
companies were particularly strong. Contrasting their increase, estimated at
14% in the first half year by ANFAC, with the flatness of total sales, indicates
that there has been some falling away in sales to individuals and other companies.
The market for sports utilities (which is reported separately by ANFAC, but
which we include with cars since this is consistent with the treatment by most
other European countries) has fallen away sharply, but of course this has been
more than offset by the strength of demand for other types of car.

Among those of the smaller countries that have so far reported, June brought
a stabilisation of the selling rate after some declines which had been quite
steep in the earlier months of the year. Six months after the change in tax
treatment for sports utilities, the Portuguese market for these vehicles continues
to be almost completely non-existent. Figures for Belgium and the Netherlands
have come in higher than expected, while the Scandinavian countries seem to
have put the steep fall in the selling rate behind them for the present.

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