Early estimates for new car sales in western Europe in December suggest that the market was extremely strong, once again underpinned by the manufacturers’ wish to reduce stock and the impact of incentives. Sales in Germany were, for once, particularly vibrant in spite of continuing uncertain signals on the economy – again, a sure sign of incentive activity. But underlying demand conditions are less strong than the December result suggests and some weakening of the market could be in prospect for the early part of 2005. JD Power-LMC reports.
Summary
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- Early estimates for December indicate a stunningly high level of sales following what has been, for many, an uninspiring year.
- Seasonally adjusted annualised sales hit 16.5 mn units/year – and sales were up by almost 7% year on year.
- Gains were prevalent in the large markets, particularly in Germany, Italy and Spain.
- UK sales were down on the previous year, but the selling rate was still very strong at over 2.7 mn units/year.
We had already seen some indication that incentives were ramping up in November – that month was one of the best on record despite the prevailing economic uncertainty. December proved beyond doubt the positive impact of incentives on sales by producing the strongest December yet. The selling rate was far greater than any result earlier in 2004 or, in fact, any other year. We have mentioned before that stock elimination has become a preoccupation of increasing importance for Europe’s OEMs and this result is surely a part of that story. Once stock has been reduced to a manageable level, and we must assume that December will have gone some way towards this end, the next phase will be a more diligent alignment of output with demand. Sales in January sales will likely pay the price for the exuberance of the market in December, as was the case 12 months ago.
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The outlook for 2005 should therefore not be changed in any major way by the explosive December result aside, perhaps, from the negative impact of a payback-hit January. A flat or slightly smaller market is therefore expected.
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 same number of selling days in December, compared with 2003.
Germany was the most impressive performer in Europe – that is something that has not been said too frequently, if at all, in recent years – accounting for an estimated 60% of the year-on-year gain in Western Europe for December. Few signs from the broader economy indicate that such a positive change in demand should take place but manufacturers have been very keen to support sales with very good deals, forcing the car market to buck economic trends. Germany, like many other markets, has been the beneficiary of the OEMs’ need to shift stock and also, perhaps, meet year-end targets. So December was good, but January is likely to be poor as sales have been pulled forward. In fact, this effect may now lead to a year-on-year fall in sales in full-year 2005, albeit a small one.
In the UK one should not be fooled by the year-on-year decline of almost 8%. December 2003 was an exceptionally strong month so almost any comparison was likely to prove unflattering – the selling rate of over 2.7 mn units/year in December 2004 is highly impressive and represents one of the best months in an already strong year. Yet, as with Germany, incentives look certain to have played a role so we should expect January to be hit. We continue to expect a significant downshift in sales in 2005.
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By GlobalDataThe 2.8 mn units/year selling rate in Italy will surely fall to a far lower level in January, as in other countries. There had been little indication in the incoming orders data, which had been trending upwards on only a weakly positive trajectory for the past few months, that such a strong December should be expected – in fact, if anything there were signs of renewed weakness late in 2004. Therefore, we should assume that strong sales in December were at the expense of a much-shortened order book. Sales in 2005 are now expected to decline slightly by around 1%.
The French market was one of the more stable large markets yet it is unlikely that this result was uninfluenced by pricing activity, given the trend on other countries. It is clear, though, that sales in early 2005 will have less to payback and we expect only a moderation in demand, with the selling rate falling back towards 2 mn units/year before beginning a recovery mid-year. Expectations for growth in 2005 are still relatively modest at just 2%.
The Spanish market continued to shine, as it has done all year – full-year 2004 sales were up by a massive 10% producing a new record of over 1.6 mn units. Sales related to the Prever scrapping incentive were very strong and this was one element which spurred particularly strong sales to consumers, offsetting falls in demand from the much smaller rental sector. It will be difficult to maintain this level of sales in 2005 though economic fundamentals remain relatively sound indicating that a sharp fall is unlikely.
Norway stood out from the crowd of small countries in December – sales doubled year on year as upcoming tax changes produced a flurry of activity (there will be sharp payback in 2005). Sweden also enjoyed a solid month, saving the full-year from decline.
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