Western European Passenger Car Sales Fall 8.1% in May—Forecast

Most of Western Europe's major automotive markets recorded declines during May, according to the latest Global Insight sales forecast data for the month, with the combined market falling 8.1% year-on-year (y/y) to 1.232 million units. This compares to 1.340 million units in May 2007. Europe's biggest passenger car market, in Germany, posted a fall of 6.2% y/y in the month to 275,259 units. However, some of the German market’s biggest players posted declines well in excess of the overall trend, including Volkswagen (VW), which suffered a 9% y/y drop in sales, while Daimler's sales fell by 13.1% y/y. Western Europe's second-largest market, Italy, also appears to have suffered an extremely poor month as a result of consumer uncertainty resulting from the weak economy. The Italian market fell by 18.1% y/y during the month to 204,607 units in comparison to 249,807 units. Sales in Italy have been hit so far this year by the many calendar effects and uncertainly over the election held in April, but the underlying market trend is undoubtedly extremely weak. In the first five months of the year passenger car sales in Italy fell by 10.3% y/y to 1.077 million units, and further falls are expected. Only Spain and Ireland have performed more poorly in Western Europe and the parlous state of the Italian market will undoubtedly have a negative effect on the country's biggest carmaker, the Fiat Group. However, Fiat Chief Executive Officer (CEO) Sergio Marchionne has reiterated that Fiat's share of the market remains fundamentally stable and that the carmaker is still on track to meet its full-year 2008 targets.

The performance of the Spanish market in May showed that it is in an increasingly dire plight, with sales of passenger cars having fallen by 24.3 y/y to 116,108 units, down from 153,395 units in May 2007. The performance of the Spanish market has been poor throughout the year, with sales down by 14.3% y/y in the year to date (YTD) at 587,411 units, a fall of nearly 100,000 units from the figure of 685,696 recorded in the first five months of last year. This decline comes after the market struggled its way through 2007, negatively affected by a number of factors. Spanish consumer confidence has taken a knock in response to a range of negative economic conditions such as the Europe-wide credit crunch, rising interest rates, and concerns about the housing market after a period of strong growth for the Spanish economy. An all-new car registration taxation system was introduced in Spain on 1 January 2008, which skewed market trends somewhat, and Spanish consumers will take some time to get used to this. In addition, data shows that car repair services rose by 4.5% in April, which indicates that consumers are repairing their cars more often and are planning to keep them longer. The one market that has performed even more poorly than Spain in Western Europe this year is Ireland, and according to Global Insight's forecast data this trend continued in May, when the market suffered a catastrophic fall of 51% y/y to 10,025 units, down from 20,446 units. There is unlikely to be any improvement until the second half of the year in Ireland, when the new tax regime comes into place, on 1 July. The new taxation system will see Ireland's Vehicle Registration Tax (VRT) based on the carbon dioxide (CO2) emissions of a vehicle rather than the engine's cubic capacity. Tax rates will range from 14% for vehicles emitting 120 g/km of CO2 or less, to 36% for cars that emit 226 g/km of CO2 or more.

However, some of Western Europe's smaller markets actually bucked the wider trend to post useful sales gains during May. Finnish sales rose by 8.4% y/y during the month to 14,229 units, taking YTD growth to 15.4%, while Portugal's sales increased by 4.9% y/y, taking the YTD increase to 10.4%, to 93,420 units. Of Western Europe's major markets, only France weighed in with positive growth during May, with a rise of 7% y/y to 184,516 units. Growth in France has been driven by a number of key new model launches from the main players in the market, such as the Citroën C5 and the latest Renault Laguna. However, sales growth for the YTD stood at a more modest 5.2% y/y, taking combined volumes between January and May to 909,195 units.

Outlook and Implications

Global Insight's latest forecast data for Western European passenger car sales in May does not make for very encouraging reading for those manufacturers with a heavy bias towards this market. Calendar effects meant that there was one less working day during the month in comparison to May 2007, but even when this is taken into account the overall decline of 8.1% is indicative of at best a stagnant market, and at worst a market that is in mild decline. Nearly all of Western Europe's major automotive markets registered declines in passenger car sales volumes in May, with France the only exception. There is a growing number of factors placing downward pressure on passenger car sales. Not least among these is falling consumer confidence, which is a direct result of the credit crunch that was brought about by the U.S. sub-prime lending crash. This has led to a tightening of consumer credit restrictions, which has made money harder and more expensive to borrow across Europe. Rising oil and energy prices have also forced consumers to tighten their belts and to be more wary of making ”big ticket” purchases. These factors have combined to weaken consumer confidence and create an atmosphere of economic uncertainty that is hardly a recipe for sustained sales growth in the Western European vehicle sales market.

Find out more about Same-day Analysis