June brought a sharp reversal to the downward trend in European car sales. Sales in the month were some 2.4% higher than the year-ago level. Even more significantly, the seasonally adjusted selling rate, which has averaged just under 14 mn units/year in the first five months, leapt to just under 15 mn units/year.


Summary:



  • European car sales suddenly soared in June. The seasonally adjusted selling rate (Saar) hit 14.9 mn units/year, which was by far the best result since December. For only the second month this year, sales exceeded the year-earlier month – but while the March gain owed much to calendar effects (the timing of Easter), calendar effects were not mainly responsible for the June result.
  • The strong outcome owed a great deal to two countries in particular: the UK and France. The West European total would have shown another year-on-year decline, had it not been for the increase in the UK. The gain in France was small compared to the previous year, but it came after a period of persistent weakness in the rest of the first half of this year.
  • By contrast, the outcomes for Germany and Italy were relatively surprise-free. The selling rate in Germany continues its gradual improvement, while in Italy the aftermath of incentives made for another rather weak month. The Spanish and Dutch markets also made a significant contribution to the positive outcome in June.

Why did the downward trend in European car demand, that had been so apparent in the first five months, reverse in such a dramatic way during June? The first step in finding the answer to that question is to pin down where the reversal of trend came from. As our Table below shows, the selling rate in June was just under 15 mn units/year, while the average for the previous five months had been below 14 mn units/year. More than three-quarters of this increase of about 1 mn units in the overall selling rate last month was contributed by three countries: the UK (which contributed 36%), France (25%) and Spain (15%). We discuss each of these further below, but in summary, the UK result shows genuine strength, even though it may have owed much to aggressive marketing. By contrast, the French result should in our view be considered in conjunction with the very low result for May – we discuss below why it may make more sense to take the two months together, giving an outcome that is more consistent with what we saw in the rest of 2003 to date. Italy also deserves to be considered a special case during June, because the aftermath of the incentive scheme is still having a negative impact on sales. If we lump all other countries together, we arrive at a picture of gradual strengthening of car demand, which is consistent with the general improvement in real incomes and in purchasing power that lower oil prices and a stronger currency are bringing about in the Eurozone. In particular, this conclusion applies to the largest national market – Germany.


The cumulative decline in West European sales in the year-to-date now stands at 3.0% for cars and 3.4% for all light vehicles (the trend in light commercial vehicle demand has been less positive). This falls to 2.4% if we expand the horizon to include all countries applying to join the EU (including Turkey).


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 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. June had the same number of Sundays (5) but one fewer Saturday than the previous year. We count Saturdays as selling days, so this does not affect our calendar adjustment.







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We expect German sales in June to come in at just under 300,000 units in June. This would be very similar to the May result, which, when finally reported by the Kraftfahrt Bundesamt, came in at 304,953 units, rather higher than our original expectations (and also higher than the estimates in last month’s report from Acea). The selling rate was also very similar in both May and June, at 3.3 mn units/year. The improvement in the selling rate is relatively modest, but it appears to be solidly founded and sustainable. The order inflow is also now picking up, and although consumer confidence is still low, it too improved in June. In particular, consumers’ assessment of whether they were likely to make major purchases over the next 12 months showed significant improvement in June. It is now where it was last August, which is still relatively low, but in this measure, as in the selling rate and the order inflow, there is now persuasive evidence that the trough of the cycle lies a few months in the past.


The UK results were outstandingly strong, and the strength was spread almost equally between private and company sales. A small part of the improvement can be put down to the absence of the extra holiday last year to celebrate the 50th anniversary of the Queen’s coronation. Another point to bear in mind (and incorporated in our figures) is that non-dealer purchases will have fallen away significantly, now that sterling is lower. However, allowing for these two issues, the SAAR was at close to record levels. There appear to have been some fairly aggressive attempts to meet quarterly sales targets, and there were some odd disparities between the results achieved by the major suppliers. It is also possible that consumers are beginning to anticipate more negative conditions in the future, in the form of higher car prices and lower property prices, and are making the last bit of hay while the sun still shines. In the last couple of months, UK consumers have responded more negatively to the question about making major purchases in the next year, though consumer confidence as a whole has remained stable.


Italian sales of just under 180,000 units in June represent a partial return to normality after the low results of the past two months. The selling rate in the month was back to about 2.05 mn units/year. The gains made in the first quarter have now been wiped out, and since there is no expectation that the second half of 2003 will be sustained by incentives, as the second half of 2002 was, the outcome for the full year will clearly be negative. ANFIA is continuing to press for new incentives, but there is no indication that the government will be receptive. The inflow of new orders is also returning towards normality, but here too normality seems for the time being to mean a market of 2 to 2.1 mn units/year, rather than the 2.3 to 2.4 mn units of the last few years. Some comfort could be drawn from the fact that the market is less oriented to small vehicles than it was during the incentive schemes, so that the decline is less in value terms than in volume terms.


We noted last month that the very disappointing French result in May could have been partly due to hard-to-quantify calendar effects, namely that May ended on a Saturday, so that many of that day’s sales would not be counted till the following month. We think that the strong rebound in June sales bears out this assessment, and for that reason we think it makes more sense to consider May and June together, rather than to take the two months in isolation. Seen in this perspective, the selling rate over the two months came out at 2.05 mn units/year, which is very close to the average for the four previous months. However, we don’t mean to put too negative an interpretation on the June result. The selling rate had been on a steadily declining trend for two years, so the fact that it stabilised in the last two months could be seen as a positive indicator for the future.


Once again, the selling rate in Spain has been on an upward trend, mirroring a gradual improvement that has been going on since last November in Spanish consumers’ views about making major purchases in the next year. The cumulative decline that we had seen in the earlier months has now been all but eliminated. We have already noted that Spain made an important contribution to the overall improvement in the West European SAAR. ANFAC’s monthly report normally provides some insight into the relative importance of sales to rental companies, which are a major factor in the Spanish market. However, this data is not yet available – our figures are based on those of the Directorate-General of Transport.


Finland produced a quite exceptionally strong result in June, bringing the cumulative gain for the first half year to well over 20%. The Dutch market, which has been very weak throughout the year to date, also had a major improvement in June. Although Portugal’s numbers look terrible in comparison with the previous year, it is clear from the SAAR figures that the trough has now been passed. The same applies to Norway.


Charles Young (cyoung@lmc.co.uk, +44-1865-791737)


Oxford, July 7th 2003







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