Car sales in Western Europe grew by 7.1% in August according to data released by JD Power.

The data analyst and forecasting outfit said that the increase – helped by scrappage incentives – was not a great surprise, but noted that there will be a price to pay when schemes come to an end.

The German car market was up by 28.4% in August with cumulative car sales in the first eight months up by 26.6% over the same period last year.

Germany’s EUR5bn scrappage scheme continued to boost sales through August, though applications for the incentive ended on 2 September when the funding was exhausted.

JD Power said that the problem the industry will soon have to face is the market volume consequences of life after incentives and the German market threatens a big swing to decline.

Not only will the ‘true’ underlying level of car demand begin to emerge in Germany after the scheme ends, but there will be a further negative contribution — in the range of several hundred thousand units — related to payback, after the pull-forward in sales associated with the end of the scheme in September 2009.

JD Power said that while there is some uncertainty relating to the exact timing of the next market plunge in Germany, a plunge ‘appears unavoidable’ nonetheless. The government has hinted at other forms of support, but these will likely be relatively small in effect compared with the post-incentive market, JD Power noted.

JD Power forecasts that the West European car market – even with the scrappage boost – will fall by just over 2% to 13.25m units in 2009.

The market ‘payback’ effect caused by the ending of scrappage incentives could result in a decline to the European car market by as much as 10% to 12m units in 2010 according to JD Power analyst Pete Kelly.

“The German market has accounted for as much as 60% of the overall boost this year,” Kelly says.

“There is some uncertainty over the timing of the downturn caused by processing issues, but a sharp downturn looks inevitable after the scale of the boost to the market in Germany this year,” he says.

The worst may be over for the economy in general but, in a post-scrappage incentive environment, the car industry will soon need to negotiate a renewed difficult period as we move into 2010.

See also: COMMENT: Beware of scrappage-induced mirage