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Tough conditions ahead for Europe's car market

By Dave Leggett | 15 January 2020

2020 will be a tough year shifting the metal for OEMs in Europe

2020 will be a tough year shifting the metal for OEMs in Europe

West European new car registrations were up 20.6% year-on-year in December - an impressive gain, but there are special factors at work.

A weak December 2018 explains part of the strong December gain, but a relatively strong selling rate - close to 15.3m units - suggests some pull-forward in sales prior to the 2020 CO2 targets that will apply in the EU.

Despite December's jump, the underlying demand trend suggests that a decline to the market is in prospect for 2020.  

Today, news from Germany is that its GDP grew by just 0.6% in 2019 (which compares with a growth rate of 1.5% in 2018), under the weight of lower manufacturing output due to reduced international trade (especially lower orders from China). The downbeat narrative includes a 3.6% drop to Germany's manufacturing output last year; ouch. 2020 is shaping up to see a similarly modest overall rate of economic growth in Germany of around 1%.

With Europe's largest market - and economic powerhouse - seeing such sluggish economic growth, the backdrop for regional new car demand is clearly far from favourable. Add in the fact that the West European car market has been running at a historically high level - close to or over 14m units - for the last four years and it's hard to build a case for much growth in 2020. Those big markets mean there are an awful lot of young vehicles circulating in Europe's car parc. The vehicle manufacturers and dealers are having to work increasingly hard to shift the metal in soft market conditions. There is also still negative consumer and business sentiment associated with the impacts of a sluggish global economy, ongoing Brexit uncertainties (a worry that will likely build in Germany and elsewhere in Europe - not just in the UK - as 2020 progresses) and rising geopolitical tensions in the Middle East (and potential knock-on effects for oil prices).

Data from LMC Automotive shows that the total car sales figures for Western Europe in 2019 showed modest growth of 0.7% in 2019, to 14.29m units. LMC says the total is best explained by three factors: the diminishing impact of WLTP implementations in 2019, which have now largely faded, the low base effect created by the more severe effects of WLTP implementation in 2018, and a pull-forward effect as cars are registered early in order to avoid CO2 emissions targets in 2020 (which explains December's spike).

German sales in December showed another strong month, rising by 19.5% YoY. With total sales figures for the year rising to 3.6m, LMC notes that Germany continues to perform remarkably well within the context of the wider economy, but it also says it does 'not expect the market strength to persist'.

In Europe's second largest market - the UK - the overall yearly picture is a little bleak. In 2019, the market managed 2.3m units, a decline of 2.4% from 2018, but also the lowest they have been since 2013. The UK market trend was shaped by Brexit uncertainty and confusion over how diesel cars will be affected by proposed low-emissions zones. Though the results of the election in December were expected to alleviate some of this uncertainty, decisions taken by the new government have ensured that a disruptive exit from the EU is still possible (at the end of this year, when the 'transition' period ends).

Things look relatively healthy in France. In December, the French selling rate jumped to 2.4m units a year and the year ended with a final annual tally of 2.2m units, a 1.9% increase on 2018. This is in part due to a very strong sales figure for December. Similarly, Italian car sales grew by 12.5% in December, taking full-year sales growth to 0.3% and a market of just over 1.9m units. In Spain, it was a rather hesitant year, the market down 4.8% from 2018 as a result of continued political uncertainty and low consumer confidence.

LMC Automotive says its 2020 forecast has been lowered due to the strength of December 2019 and associated pull-forward in registrations, though it is still forecasting a market of 14m units for the year. LMC analyst Jonathon Poskitt strikes a cautious note on overall market prospects for the year ahead: "All meaningful economic challenges in 2019 can be expected to persist into 2020," he says. "Particularly in light of the external trade environment and Brexit uncertainty."

For the industry in Europe, 2020 will be another hugely competitive year with the added complication for the OEMs of factoring in push and pull for models according to new EU CO2 fleet average rules and attempting to keep exposure to potentially very hefty fines as low as possible. And this comes on top of the disruption already caused by WLTP.

The European market's shift away from diesel and the growth of crossovers and SUV segments makes the aim of reducing fleet CO2 averages in line with tighter targets much more difficult.

The European market's shift away from diesel and the growth of crossovers and SUV segments makes the aim of reducing fleet CO2 averages in line with tighter CO2 targets much more difficult. 2020 will also be a year in which electrified models and full battery electric vehicles come into the spotlight, especially with the launch of high-profile models such as VW's ID.3. Unfortunately for bottom lines, the costs of development for electric vehicles are still eye-wateringly large and there is still much work to be done to improve availability of charging infrastructure.

Another worry for demand is that consumers' growing sense of imminent major technological change - and associated regulatory uncertainties - may continue to make them hesitant to invest in replacement vehicles, especially if they have a trusty diesel-engine SUV that needs replacing and they are not sure which way to go. Expect the vehicle manufacturers to continue to complain about what they see as overly ambitious EU CO2 targets and the heavy costs of meeting them. It is, they will claim, handicapping their competitive position globally.

Even if it turns out to be a moderate 2-5% decline for the West European car market in 2020, we can be sure of one thing: it will be a very tough operating environment for automotive companies.

West Europe new car sales by national market, December 2019

Dec 19Deec 18%ch20192018%chDec 19 DSR20192018%ch
WESTERN EUROPE113600394213820.614294530141950650.71529012514294530141950650.7
AUSTRIA227281922118.23302713419493.43334613302713419493.4
BELGIUM334672319744.35500015496320.14728745500015496320.1
DENMARK154951390811.42255962184993.21961502255962184993.2
FINLAND8213616433.2114200120498-5.2130473114200120498-5.2
FRANCE21119416539027.7221430121735231.92355149221430121735231.9
GERMANY28338023705819.5360725834357785.03963547360725834357785.0
GREECE9327737526.511533310418610.711453611533310418610.7
IRELAND224142.577117098125707-6.894160117098125707-6.8
ITALY14007512453512.5191632019107050.32190110191632019107050.3
LUXEMBOURG3013261515.254894528074.05283954894528074.0
NETHERLANDS4243620028111.94473184437580.84686824473184437580.8
NORWAY11254124619.7142381147929-3.8131658142381147929-3.8
PORTUGAL17726161409.8223530228079-2.0238761223530228079-2.0
SPAIN105853993396.612582591321486-4.8135184012582591321486-4.8
SWEDEN4779722937108.43551653536660.45330953551653536660.4
SWITZERLAND348252753926.53114662997163.93440413114662997163.9
UK1489971440893.423111402367147-2.4231874823111402367147-2.4

Source: LMC Automotive

West European annual car sales, 2012-2020F

Units (m)%ch
201211.76null
201311.53-1.8
201412.14.9
201513.188.9
201613.955.8
201714.32.5
201814.20-0.7
201914.290.8
2020F14.01-2.0

Source: LMC Automotive (January, 2020)