COMMENT: Europe's recovery comes into view

By Dave Leggett | 11 October 2013

Europes recovery from recession has been a long-time coming and has not been helped by the eurozones structural problems

Europe's recovery from recession has been a long-time coming and has not been helped by the eurozone's structural problems

The European car market may be bouncing along at the bottom, but it won't do that forever. It may be a weak recovery ahead, but cars will eventually be replaced. Consumers will eventually be attracted in to the showroom to replace a vehicle that is facing higher running costs, as well as looking a little long in the tooth. 

The UK offers other markets hope. Put people on Personal Contract Plans (PCPs) that come with low interest monthly repayments (not difficult right now), combined with some great new products loaded with features, more fuel-efficient powertrains and, yes, they will come. The UK economy is not exactly zooming along, but the UK's new car market this year is heading for a very respectable 2.2m units. In September it was running at an annualised 2.4m units, driven by feverish private retail sales. By way of contrast, the Italian car market – also a car market over 2m units in a 'normal' year - has been running at an annualised rate of under 1.4m units.

As I have noted before, there is plenty of manufacturer activity in Britain, some great deals around. Those in employment are probably of a mindset that the British economy is, at least, over the worst. If you have some spare cash (and many do after PPI windfalls), replacing that ageing car with a nice new model – monthly repayments unchanged – looks like a no-brainer.

Looked at in a European context, the UK has looked like a place - in the last few years - where the volume OEMs can eke out some sales growth at a time when many eurozone markets have collapsed. Just ramp up right-hand drive production and ship more to the UK to help raise capacity utilisation at plants where keeping the lines running has been something of an issue. 

The interesting thing is, this behaviour has obviously gone on for longer than the manufacturers would have liked because continental car markets have stayed depressed for longer than expected as economies have flat-lined. The OEMs have continued diverting car production to flood Britain while the sterling-exchange rate has actually moved in the wrong direction (as the ongoing euro crisis has abated). With margins razor thin at best, that's not good for bottom lines perhaps, but I can imagine people concluding that to continue to ship to Britain and keep the policy under review is the least-worst option.

However, diminishing returns in the saturated and ultra-competitive UK car market with its unhelpful exchange rate will make them want to switch to sending cars elsewhere as soon as they can. Western Europe's car market has been running at a level comparable with the early-1990s. It won't do that forever. Replacement demand is building and, as soon as things pick up from unprecedented market lows in France, Germany, Spain etc, the UK car market may well experience a little cooling off...

The year 2015 may well be when Europe's recovery takes hold. From the second half of 2014, the UK car market may – I'm just saying may – go into reverse as some major manufacturers start to gear up to supply other markets and become less interested in shifting metal at a loss in Britain.

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Source: LMC Automotive