New car registrations rose to 1.7 million in March from 1.6 million a year ago. After rises in the first quarter of 2004, the west European car market is starting to look a little more confident. However, the prospect of soaring growth, which would basically be a result of improved economic factors across the board, is slim.

Despite a fall of 1.6% in January 2004, new car sales in western Europe are seeing the first signs of a long awaited recovery. For the second consecutive month, car sales have increased on the same period a year ago according to the ACEA. In March, sales increased by 6.9%, leading to a 2.9% rise in Q1 vehicles sales compared to the same period in 2003. This year the western European car market is expected to increase by 1-2%, compared to a depressing 2003, when new car registrations fell by 1.3%.

Western Europe's forecast economic growth of 1.7% in 2004 seems to already have enhanced consumers' confidence, creating a boost in demand for vehicles. While this sales revival is undoubtedly being helped by the launch of new models and tax incentives, the decisive factors in any sustained growth period will still be a persistent economic recovery - particularly in big markets such as France, Germany and Italy, where demand has been weak.

Manufacturers are facing similar challenges in Europe to those seen in the US marketplace, with fierce competition in every segment of the ultra competitive new car market. European manufacturers are also competing against Japanese rivals, which are constantly strengthening their position in the European market, and which last year increased their collective European sales by 17%.

In other markets, the strength of the euro has made life difficult for European manufacturers. The euro's strength against a weak dollar has damaged European manufacturers' attempts to increase their business in the US and played into the hands of their non-European rivals.

Manufacturers have also started to use the US method of aggressive discounts on new vehicles to fight declining demand, at the risk of reducing their profit margins. They are also counting on bigger ranges and more stylish models to tempt potential buyers.

Even with a small recovery predicted this year, the European new car market's prospects for growth look limited in coming years. Little wonder then that large manufacturers are turning to new and growing markets such as Asia.

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