Western European Car Sales Sank in June, Global Insight Estimates

Western European Car Sales Plummet

Western European passenger car sales are estimated to have plummeted 9% year-on-year (y/y) in June, as declines in Spain (31% y/y) and Italy (20% y/y) were accompanied by falls in seven other markets in the region, according to Global Insight. This confirms that June was a dreadful month for the automotive industry, and follows yesterday’s news that vehicle sales in the U.S. market plunged 18% y/y during the month. Thankfully, the big markets of Germany and France both reported small increases in June, propping up what otherwise would have been an even more disastrous month, as consumers grapple with soaring fuel costs, rising interest rates, and surging basic food prices.

The Spanish market’s precipitous 30.8% y/y drop in June was a direct result of the current economic turmoil in the country following the bursting of the housing bubble and the knock-on effects of this on the vital construction sector. Added to this, a new carbon dioxide (CO2)-based purchase tax and the withdrawal of the long-standing “Prever Plan” scrappage scheme have left the passenger car market reeling at the half-year stage; in the year to date (YTD), sales are down 18.9% y/y at 702,000 units, nearly 150,000 units lower than in January-June 2007.

Italy is also in the grip of a sharp economic slowdown, caused by rising inflation and a slump in consumer sentiment. This has been exacerbated by the high base of comparison provided by the sales figures for last year, when the government's scrappage scheme was in full flow and there was a high level of incentive activity. As a result, there was a 20.1% y/y drop in sales during June, leaving first-half sales down 11.7% y/y, or 168,000 units.

Ireland, another nation with a worryingly overvalued housing stock, eclipsed these declines, recording a 48% y/y fall in car sales during June, although this has its roots in the changeover in July to a CO2-based circulation taxation system, replacing the old scheme based on engine size. In all, 10 of the 17 Western European nations are likely to have experienced falling car sales in June, wiping 129,000 units from the June 2007 figure, leaving the estimated total at just 1.308 million for the month. This leaves estimated YTD sales down 2.9% y/y, or 228,000 units.

With only the U.K. figures left to be confirmed of the “big five” markets, this initial estimate makes grim reading for the Eurozone economy, and has prompted a downward revision to our initial full-year estimates for the region. Spain, although regarded as a somewhat special case because of its economy’s severe dependency on the construction sector, has been joined by the Italian market in suffering falls of around 20-30%, unprecedented in recent times. Furthermore, as arguably the two most vulnerable economies in the region, they are often regarded as providing the litmus test for the other nations and a sign of things to come. The United Kingdom is also suffering from a rapidly cooling housing market and the knock-on effects of this on consumers are expected to become more tangible in the coming months, presenting further negative implications for the car market.

Germany and France are faring better, and are preventing what would otherwise be a wholesale collapse in the Western European sector. French car sales rose 1.6% y/y in June (although this equates to just 3,000 units) and German sales increased 1% (again adding just 3,000 units to the total). The French market is benefiting from the new CO2-based taxation system, which has provided a real boost to sales. The majority of growth has been concentrated at the smallest end of the market thanks to the new taxation system, and data for the first five months of the year (the latest detailed data available) show that registrations of A-segment cars leapt by over 53% to 81,500 cars from 53,000 in the first five months of 2007, also no doubt helped by the soaring cost of fuel. The German passenger car market also edged up 1% y/y in June; although this bucked the trend of large falls in some of the other major Western European markets, it is nevertheless a poor result in the context of the base of comparison provided by the June 2007 figure, which itself was down 7% on the same month in 2006 as a result of new value-added tax (VAT) laws brought in last year. Thus, although the market rose 3.6% y/y at the half-year stage, by comparison the market was down 9% from January-June 2006. The reality is that consumers are suffering from the same economic factors seen in the rest of Western Europe, such as high fuel prices and tightening consumer credit conditions, but, in line with the trend seen in France, the top three passenger car brands in the country all recorded sales rises in June as new models and new, high-efficiency engine technology continued to be rolled out.

Outlook and Implications

The seasonally adjusted annualised run rate (SAAR) for the Western European region in June is estimated at just 14.3 million cars, some 500,000 units lower than the 14.8-million-unit SAAR for 2008 as a whole. June is an important month in the region—over the last five years tactical discounting and incentives from carmakers have boosted sales during the month, but this year similar actions have failed to attract consumers in the same way, further indicating that the economic headwinds in the region are worsening and that private demand is declining.

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