European New Car Sales Sink by 7.8% in May as Top Industry Executive Warns of Worse to Come

With 1,334,081 new passenger cars registered in Europe during May, new car demand fell by 7.8% year-on-year (y/y), equivalent to a loss of 112,000 units, according to data released this morning by the Brussels (Belgium)-based pan-European vehicle manufacturers' association, ACEA. "This result was affected by one working day less across the whole region, as well as by a massive increase in fuel prices", the trade body said in a statement. This takes cumulative demand for the first five months of the year to 6,919,190 units, down 0.7%—or 50,000 units—from the corresponding period in 2007.

Western European Sales Fall a Hefty 8% in May

Looking at Western Europe, which still accounts for over 90% of the region's demand, May registrations fell by 8.0% y/y to 1,235,234 units, 108,000 units less than the 1,343,224 units registered in May 2007.The market that suffered the most was Ireland, whose monthly registrations more than halved to just over 10,000 units, down from 20,000 in May 2007. This collapse in the market was caused by consumer uncertainty ahead of the introduction of a new carbon dioxide (CO2)-based tax regime next month. As of 1 July 2008, Ireland's Vehicle Registration Tax (VRT) will be calculated according to the CO2 emissions of a vehicle rather than the engine's cubic capacity. The new 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.

In terms of the major Western European markets, Spain and Italy suffered the most, losing 24.3% y/y and 17.6% y/y of volumes, respectively, equivalent to a combined loss of almost 81,000 units (see Europe: 3 June 2008: Spanish Car Sales Slump by One-Quarter in May, French Demand Climbs 7.1% and Italy: 4 June 2008: Italian Car Sales Slump 17.6% in May, Orders Down). The German and U.K. markets also suffered, albeit to a far lesser extent, while France was the only one of the ”Big Five” markets to manage a sales increase in May.

For the year to date (YTD), Western European volumes are 1.5% lower than in the same period last year, mostly due to substantially lower Spanish and Italian demand, although falls in these markets have been offset to some extent by stronger French and German sales during the first five months.

New EU Member States Also See Declining Demand

Sales in the 10 newer European Union (EU) member states from Central Europe fell by 4.2% y/y in May to 98,767 units, down from 103,059 a year earlier, mainly caused by a 16.6% plunge in demand in the region's second-largest new car market, Romania, and exacerbated by falls in Hungary and the Czech Republic. For the YTD, sales in the region are a healthy 9.8% higher than in the same period last year, as the region's four largest markets—Poland, Romania, the Czech Republic, and Hungary—have all expanded compared to last year.

May Was a Terrible Month for Most Manufacturers

In terms of manufacturer performance, none of the major manufacturing groups managed to increase their European sales in May. Of course, there were exceptions for individual brands, although not many. Jaguar, which was one of the worst-performing groups throughout 2007, enjoyed a massive 60% y/y increase in its monthly registrations to almost 4,000 units, up from around 2,500 in May 2007. Likewise, its YTD performance is impressive, having increased its sales by 10.7% y/y during the first five months. Nissan, Mazda, and Mini also managed small y/y increases during May.

Industry Chief Warns of Worse to Come

These results highlight the damaging effects that soaring fuel prices and economic concerns can have, but Carl-Peter Forster, the president of General Motors (GM) Europe, predicts much worse to come. Writing on a GM weblog, Forster remarked: "To put it bluntly, the rise in oil is having a profound and permanent impact on the fundamentals of our business—and not just in North America. Adding insult to injury, while energy costs are draining the consumer side of our financial equation, the impact of skyrocketing commodity prices and the huge disparity between the Euro and most other currencies are seriously dragging down the production side of things here in Europe."

He continued: "The impact on the industry is going to be extremely tough, which is already becoming very apparent. For GM, even when you factor in the exceptional growth we are experiencing in Eastern Europe, Asia and Latin America, it’s clear that the business in the mature North American and certain European markets could be dragged down to lows we haven’t seen since the recessionary days of the early 80’s."

Outlook and Implications

The fact that May 2008 had one less working day than May 2007 must be taken into account. On an equal working-day basis, the fall in the May market was a far less drastic 3-4% y/y. At the same time, it cannot be denied that there are a growing number of factors placing downward pressure on passenger car sales in the region. Rising oil and energy prices are having a massive effect, not just on consumers' wallets but also on their confidence levels. Consumers are now being forced to tighten their belts and as a consequence are more wary of making ”big ticket” purchases. The credit crunch that was brought about by the U.S. sub-prime lending crash has led to a tightening of consumer credit restrictions, which has made money harder and more expensive to borrow across Europe, which is also taking its toll on consumer confidence levels. The resulting atmosphere of economic uncertainty is hardly a recipe for sustained sales growth in the Western European vehicle market, which still makes up the bulk of overall European new car sales.

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