After a strong March, car market momentum in Western Europe fell back in April, reinforcing fears of a weak market in 2005. The seasonally adjusted running rate declined sharply after March’s upward spike, suggesting that the incentives-driven bounce-back was a temporary one and that weak consumer confidence generally is emerging as a dominant factor once again. JD Power-LMC reports.
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Summary
- The seasonally adjusted annualised sales rate for Western Europe fell back to 13.81mn units/year in April, down some way on the 15.40mn units/year rate achieved in March, and weaker even than the modest level achieved in January.
- Holding sales back most in the region was Italy, the market hit by weak consumer confidence and a struggling economy.
- The UK was another major underperforming market last month, with consumer confidence again a key feature.
- Spain again put in a strong performance while Germany and France proved lacklustre.
The car market in Western Europe failed to continue the form achieved in March, with the selling rate in April coming in at just 13.81mn units/year. The March result pointed to some bounce-back from a weaker couple of months after the December spike, but with the latest month’s results, the expectation of a weaker 2005 for the region is reconfirmed. Implied selling rates of all five large car markets in the region fell short of the outturns achieved for 2004, with performances from Italy and the UK having most impact. In these two countries, as is the case more generally, a picture of weaker consumer confidence is a critical factor. The latest data points to Italian consumer confidence having eased a little in the most recent month, although this still remains poor, hindered by the backdrop of a weak economy. In the UK, meanwhile, consumer demand continues to slow and confidence recently edged downwards.
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 two more selling days in April, compared with 2004.
In Germany, an implied selling rate of 3.21mn units/year not only highlighted the ongoing lack of consumer confidence in this key European economy but also pointed to the stronger March result as being short-lived. With a threat of economic weakness leading to second quarter negative growth, talk of a recession will only build. Bearing this in mind, the environment for car sales in the country remains testing and we continue to anticipate a mild contraction in the German car market for this year.
UK car sales in April revealed a market well off its recent pace, with the selling rate only fractionally over the 2mn units/year mark. Private sales remain the weak element, while fleet/small business sales stay fairly robust. We continue to assume a weaker year in the UK in 2005 – with lower levels of mortgage equity withdrawal a significant factor as well as a weakening of consumer spending – although the market will likely do better than April’s implied level. One factor in the April weakness was the slump in MG Rover sales as the last mass car manufacturer in the UK collapsed. However, even when this is factored in, an addition of say 6,000 MG Rover sales to the April total would still only have given an implied selling rate of 2.15mn units/year, which is still a disappointing result. Our assumption is that any lost sales in April due to MG Rover’s demise will be made up in the next month or so as potential buyers demands are met by other manufacturers, and the 2005 market total in the UK will not be affected by the company’s demise.
In France, a slightly weaker month in April saw the selling rate in the market at the 2.00mn units/year level. While we are mindful that this level is down a little on the rates seen over the last few months, we believe this weakness will be short-lived, with positives on the horizon such as an expected fall in the unemployment rate. With the selling rate through the rest of the year maintained at the level achieved in recent months, a solid improvement on the 2004 outturn will result.
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By GlobalDataSpanish sales remained robust as the selling rate in April differed only slightly from the record outturn achieved last year. The year-to-date selling rate still stands comfortably up on 2004 level and the 4×4 segment continues see its sales on a rapid rise – sales of this vehicle-type were up nearly a third in the most recent month. For the full year, we anticipate only small increase on 2004’s outturn as current circumstances don’t lead us to expect anything more than the sustaining of these historically strong sales levels.
As expected from the dismal state of incoming orders, the Italian market suffered in April, with the worst selling rate for a number of years – it came in at 2.02mn units/year. A struggling economy and weak consumer confidence does nothing for the car market, and further disappointing news continues to come from incoming orders. We expect the market this year will fall by around 3-4% on 2004. However, Italy is susceptible to the heavy employment of manufacturer pricing incentives, and this year will be no different.
Ireland continues to improve on the 2004 results, being one of the smaller countries making a positive contribution to regional growth. The market in Belgium continues to struggle.
West European Car Sales
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