GERMANY: European car market outlook mixed – forecasters

By just-auto.com editorial team | 23 April 2008

The doom and gloom over prospects for the European car market may have been slightly overdone by some commentators according to analysts speaking at a JD Power Automotive Forecasting conference held today in Frankfurt.

While the forecast company expects the Western European car market to decline in 2008, that will be offset to some extent by continued strong demand in Eastern Europe.

JD Power analyst Jonathan Poskitt told delegates that while demand in Western Europe will be weaker this year at 16.7m units, a decline of 1.2% on 2007, it's not all bad.

"We expect to see the German market rise in 2008 over last year," he said.

"Germany was particularly weak last year due to a VAT change and uncertainty surrounding an upcoming CO2 tax - special factors. But retail sales in Germany picked up late last year and we expect that positive trend to continue through this year."

However, Poskitt contrasted growth in Germany - Western Europe's largest national market - with a negative trend in the UK car market.

"The UK market will feel the combined effects of the credit crunch, a dent in the financial services sector and the impact of a property sector downturn - which will all hit consumer confidence and impact the car market adversely," he continued.

"But overall, the weakening in Western Europe is small and we expect a flat market in 2009. Beyond 2009 we anticipate that vehicle replacement will pick up and a market upturn will follow."

In Central and Eastern Europe (including Russia) JD Power expects the car market to expand by 15.3% to 6.1m units in 2008 (within that, Russia's market growing from 2.6m units to 3.175m units). Demand prospects in the region are highly positive, especially in Russia which is enjoying an energy based economic boom.

By 2010 the Russian car market is forecast to expand to 3.8m units.

Earlier, delegates heard a relatively upbeat assessment of global economic prospects from Oxford Economics' John Walker.

Walker maintained that problems for the US economy were offset by the strength of domestic demand in Asia and said that in Europe the Eurozone area had been supported by a strong manufacturing sector.

He pointed out that the German manufacturing sector has improved its competitiveness with low wages and productivity agreements that are offsetting problems caused by the recent strength of the euro.

"That's been a very strong positive for Germany," he said.

However, Walker ended on a sombre note.

"The big worry for the world economy outlook is not the current credit crunch, financial sector concerns or housing market difficulties in some countries," he said.

"It's inflation. If wage increases stay weak, then consumer spending stays weak and inflation stays under control.

"But surging commodity prices pose a potential problem for interest rate policy later this year and in 2009. It's inflation that is actually the big danger for the global economy right now."

Dave Leggett